Real-options-and-uncertainty 2.pdf - Strategic Management...

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Strategic Management / Business Policy Phil Anderson University of Illinois, Urbana-Champaign College of Business Spring 2018 Real Options & Uncertainty
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2 The Situation Low-end steel market is saturated (Minimill “territory”) CEO Iverson wants to move upmarket & enter the flat sheet segment (Integrated “territory”) Should we be the first to commercialize SMS’s CSP technology? Risks New technology (unknown unknowns) Marketing is needed to play in the high-end flat sheet space Operations knowledge is different between flat and non-flat products Resource constraints (JV with Yamato Kogyo) Technological leapfrogging (perhaps Hazelett or something else)
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3 Net Present Value or Discounted Cash Flow Analysis !me CF + - Traditional Evaluation of Financial Projects
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4 1. Amount of 2. Timing of 3. Risk of Expected cash flows 3 Basic Factors
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5 Your recommendation was… and why?
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6 Ways to Handle Uncertainty Sensi7vity Analysis - Analysis of the effects of changes in a single parameter such as sales, costs, etc. on a project. Scenario Analysis - Project analysis examining par7cular combina7ons of assump7ons. Asks “what if” ques7ons.
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