Real options: A primer

Abstract

This paper serves to introduce the basic ideas and valuation principles for corporate real options, and basic concepts related to growth options, competition and strategy. It first uses an example to motivate the discussion of various real options and presents practical principles for valuing several common real options, such as the options to defer investment, expand capacity, abandon the project, or switch uses. It then presents a conceptual discussion of growth options, competition and strategy, proposing strategic questions and a new project classification scheme as a practical aid for option-based analysis. Finally, it discusses various applications and notes areas for future research. ABSTRACT FROM AUTHOR]

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