Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects
In today’s uncertain and highly competitive business environment, the difficulty to make strategic investment decisions is growing. The dominant discounted cash flow analysis requires the assumption of perfect certainty of project cash flows. However, under uncertainty traditional DCF approach falls...
Saved in:
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Riga Technical University Press
2017-04-01
|
| Series: | Economics and Business |
| Subjects: | |
| Online Access: | https://doi.org/10.1515/eb-2017-0008 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1850180853041201152 |
|---|---|
| author | Pivorienė Agnė |
| author_facet | Pivorienė Agnė |
| author_sort | Pivorienė Agnė |
| collection | DOAJ |
| description | In today’s uncertain and highly competitive business environment, the difficulty to make strategic investment decisions is growing. The dominant discounted cash flow analysis requires the assumption of perfect certainty of project cash flows. However, under uncertainty traditional DCF approach falls short of providing adequate strategic decision support, and this situation demands new methods for investment evaluation. Real options approach (ROA) has shown the potential for valuation of strategic corporate investment decisions and managerial flexibility in situations of high uncertainty. Under ROA, projects are viewed as real options that can be valued using financial option pricing techniques. This framework allows their owner to keep investment options open and to benefit from the upside potential of an opportunity while controlling the downside risk. The main aim of this research is to investigate the feasibility of real options approach and traditional DCF analysis for assessment of strategic investment projects under environmental uncertainty. |
| format | Article |
| id | doaj-art-eb511ff7662346c7ad395afb678b8b7d |
| institution | OA Journals |
| issn | 2256-0394 |
| language | English |
| publishDate | 2017-04-01 |
| publisher | Riga Technical University Press |
| record_format | Article |
| series | Economics and Business |
| spelling | doaj-art-eb511ff7662346c7ad395afb678b8b7d2025-08-20T02:18:01ZengRiga Technical University PressEconomics and Business2256-03942017-04-013019110110.1515/eb-2017-0008eb-2017-0008Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment ProjectsPivorienė Agnė0Kaunas University of Technology, LithuaniaIn today’s uncertain and highly competitive business environment, the difficulty to make strategic investment decisions is growing. The dominant discounted cash flow analysis requires the assumption of perfect certainty of project cash flows. However, under uncertainty traditional DCF approach falls short of providing adequate strategic decision support, and this situation demands new methods for investment evaluation. Real options approach (ROA) has shown the potential for valuation of strategic corporate investment decisions and managerial flexibility in situations of high uncertainty. Under ROA, projects are viewed as real options that can be valued using financial option pricing techniques. This framework allows their owner to keep investment options open and to benefit from the upside potential of an opportunity while controlling the downside risk. The main aim of this research is to investigate the feasibility of real options approach and traditional DCF analysis for assessment of strategic investment projects under environmental uncertainty.https://doi.org/10.1515/eb-2017-0008discounted cash flow analysisreal optionsstrategic investment projectsuncertainty |
| spellingShingle | Pivorienė Agnė Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects Economics and Business discounted cash flow analysis real options strategic investment projects uncertainty |
| title | Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects |
| title_full | Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects |
| title_fullStr | Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects |
| title_full_unstemmed | Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects |
| title_short | Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects |
| title_sort | real options and discounted cash flow analysis to assess strategic investment projects |
| topic | discounted cash flow analysis real options strategic investment projects uncertainty |
| url | https://doi.org/10.1515/eb-2017-0008 |
| work_keys_str_mv | AT pivorieneagne realoptionsanddiscountedcashflowanalysistoassessstrategicinvestmentprojects |