Provides a basic understanding of real options in corporate finance. Traditional discounted cash flow method (NPV) do not deal well with management responsibilities flexibility or future response to uncertainty. The value of this flexibility can be substantial and is well treated with the option-pricing techniques. A description and taxonomy of real options is through several examples of appreciation and real options, followed by better value-enhancing decisions.

Provides a basic understanding of real options in corporate finance. Traditional discounted cash flow method (NPV) do not deal well with management responsibilities flexibility or future response to uncertainty. The value of this flexibility can be substantial and is well treated with the option-pricing techniques. A description and taxonomy of real options is through several examples of appreciation and real options, followed by better value-enhancing decisions.
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Michael E. Edleson
8 pages.
Release Date: 31, March 1994. Prod #: 294109-PDF-ENG
Real Options: Managerial Flexibility appreciation HBR case solution