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Real Options: Valuing Managerial Flexibility

  • Format:Print
  • | Language:English
  • | Pages:8
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Abstract

Provides a basic understanding of real options in corporate finance. Traditional discounted cash flow techniques (NPV) do not deal well with managerial flexibility or future response to uncertainty. The value of this flexibility can be significant and is handled well by option-pricing techniques. A description and taxonomy of real options is followed by several examples of valuing and using real options to make better value-enhancing decisions.

Keywords

Strategy; Capital Budgeting; Corporate Finance

Citation

Edleson, Michael E. "Real Options: Valuing Managerial Flexibility." Harvard Business School Background Note 294-109, March 1994. (Revised June 1999.)

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