Share
Explore BrainMass

Option analysis for capital budgeting

Has option analysis become more or less important for capital budgeting analysis in recent years?

Solution Preview

Source: Material from the following has been used while framing this answer

Principles of Corporate Finance by Brealey and Myers
dare.agsci.colostate.edu/csuagecon/ extension/docs/agfinance/afr03-01.pdf -

A real option exists if we have the right to take a decision at one or more points in the future (e.g. to invest or not to invest, or to sell out or not to sell out). Between now and the time of decision, market conditions will change unpredictably, making one or other of the available decisions better for us, and we will have the right to take whatever decision will suit us best at the time.

There ...

Solution Summary

The solution discusses whether option analysis has become more or less important for capital budgeting analysis in recent years.

$2.19