Unformatted text preview: to the paper is to use a question-and-answer format. Now that the questions have been drafted, you have to develop the answers. a. What are some types of real options? Answer: 1. Investment timing options 2. Growth options a. Expansion of existing product line b. New products c. New geographic markets 3. Abandonment options a. Contraction b. Temporary suspension c. Complete abandonment 4. Flexibility options. b. What are five possible procedures for analyzing a real option? Answer: 1. DCF analysis of expected cash flows, ignoring option. 2. Qualitatively assess the value of the real option. 3. Decision tree analysis. 4. Use a model for a corresponding financial option, if possible. 5. Use financial engineering techniques if a corresponding financial option is not available....
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- Spring '08
- Corporate Finance, Real options analysis, Binomial options pricing model, Tropical Sweets Inc., corresponding financial option