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Topic 17, Exercise 1 Real Options is a site developed to provide information about a book on the subject, but the site offers several good, recent articles from professional periodicals on real options, which can expand our knowledge in this area. Under "What's New," select one article that interests you, read it, and answer the following questions: 1. Explain the application of real options noted in the article that you reviewed. Each article offers details about how real option concepts can be provided to a particular area of decision making, especially capital budgeting. The key focus is to be able to identify the option, determine the life of the option, and its value. In traditional finance, "maintaining flexibility" is the term used for constantly seeking or having the flexibility
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Unformatted text preview: to expand, close or delay. Each article identifies the concepts of real options and outlines a specific application in a particular industry or investment. 2. How does the "real options" decision criterion differ from NPV analysis? NPV analysis provides an upfront analysis for a "go" or "no go" decision on a project, with the value of future options as part of the relevant cash flows. As the project moves through stages of development, identifying and analyzing (NPV analysis) available real options is a dynamic, time line focus on the progression of a project through time, recognizing that delay or abandonment are important and valuable "flexibility" options for managers....
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This note was uploaded on 09/13/2011 for the course FIN 6301 taught by Professor El-asmawanti during the Fall '09 term at University of Texas at Dallas, Richardson.

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