engleski

Real option analysis - decision making in volatile environment

Since the capital investments absorb significant amount of cash and determine future business activity, valuation of investment project is considered to be one of the most important decisions companies must make. For the last two decades developed countries have been using contemporary methods of valuation of investment projects that include the possibility of adjusting future decisions depending on the conditions in the business environment. Capital investment efficiency assessment cannot be a reliable or an objective basis for making investment decisions unless it also takes into account real option analysis. Although real option approach questions reliability of traditional methods of valuation of investment projects, it should primarily serve as a supplement rather than a substitute for traditional methods of valuation of investment projects aiming at more successful investment decisions making.

investment; risk; uncertainty; discounted cash flow; net present value; real option

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