Capital Projects and Real Options

Real options represent a company’s rights to make chronological decisions in a capital project.

Real options increase the NPV of a project because a firm would not rationally exercise an option which lowers value.

Types of Real Options

Evaluating Real Options

Calculate the project’s NPV without any options.  If the project has a positive NPV, then real options will increase its value.

If the project without any options has a negative NPV, then make adjustments based on the value of associated real options.  The analyst must determine if the value of the real options is sufficient to create a positive NPV.

Incorporate the use of decision trees or option pricing models to evaluate a capital project.

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Data Science in Finance: 9-Book Bundle

Data Science in Finance Book Bundle

Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.

What's Included:

  • Getting Started with R
  • R Programming for Data Science
  • Data Visualization with R
  • Financial Time Series Analysis with R
  • Quantitative Trading Strategies with R
  • Derivatives with R
  • Credit Risk Modelling With R
  • Python for Data Science
  • Machine Learning in Finance using Python

Each book comes with PDFs, detailed explanations, step-by-step instructions, data files, and complete downloadable R code for all examples.