The Real Options approach to investment decision making.

1. Real Options Real-options analysis is one of the most important ideas of applied corporate finance to be developed in the last 30 years. Real-options analysis gives management the flexibility to address uncertainties, as they're resolved. Conventional capital budgeting fails to account for this flexibility and, moreover, fails to integrate strategic planning. But the real-options methodology goes beyond a simple view of valuation and more closely matches the manner in which businesses operate. Once a project begins, …

…into the project when managers get a pat on the back or get the blame. Individual circumstances demand for the use of either NPV or real options and a efficient financial manager will not turn a blind eye on either of the two methods. References Brealey R A and Myers S, Principles of corporate finance (7th edition), McGraw-Hill/Irwin, c2003 Brealey R A and Myers S, Principles of corporate finance (6th edition), McGraw-Hill/Irwin, c2003