4.0 Introduction (One with all the options...)

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Do curso por The University of Melbourne

Alternative Approaches to Valuation and Investment

187 classificações

The University of Melbourne

Alternative Approaches to Valuation and Investment

187 classificações

Curso 4 de 5 em Specialization Essentials of Corporate Finance

In this course, participants will develop an understanding of the intuitive foundations of asset and investment valuation, and how alternative valuation techniques may be used in practice. This is part of a Specialization in corporate finance created in partnership between the University of Melbourne and Bank of New York Mellon (BNY Mellon). View the MOOC promotional video here: http://tinyurl.com/h75pzt6

Na lição

Addressing financial reality with real options analysis

This week we describe how standard NPV analysis might lead to incorrect decisions when we fail to account for the impact of (or upon) firm flexibility. We then describe the three most common types of real options that firms face in practice and then explain how decision trees might be used to arrive at an approximation of the value of the real option that is embedded within a project. We conclude by considering empirical evidence on the take-up of real options analysis and discuss the situations in which real options analysis might most be needed.

4.0 Introduction (One with all the options...)2:02

4.1 The Problem with NPV (It always works… except when it doesn’t…)6:37

4.2 Examples of Real Options in Practice (Is that an option in your project?)11:56

4.3 Approximation of Real Option Values Using Decision Trees (Options do grow on trees!)9:51

4.4 Empirical evidence and final points (Does anyone exercise their option to use real options?)8:57

Conheça os instrutores

Paul Kofman
Dean, Faculty of Business and Economics
Sidney Myer Chair of Commerce
Sean Pinder
Associate Professor
Faculty of Business and Economics

Welcome to module four of the course,

<i>Alternative Approaches to Valuation and Investment</i>.

This is the final module.

The fourth course of the specialization,

<i>Essentials of Corporate Financial Analysis and Decision-Making.</i>

So let's reset the scene.

We began this course by defining measures of and alternative attitudes towards risk.

We then shifted to linking compensateable risk with expect of return

using tools such as the capital asset pricing model.

This then lead to a discussion of how we might use a firms own

financial information to arrive at an estimate at its cost of capital.

Specifically its weighted average cost of capital.

And now we shift to real options analysis.

We'll begin the module by outlining the problems that we might

face while undertaking standard NPV analysis.

And then move on to the describing three of the main styles of real options.

The options to invest, expansion options, and the option to abandon operations.

We'll then work through a discounted cash flow approach to approximating the value

of real options, using decision trees,

and conclude with a review of some of the key empirical evidence in terms of

how widespread real options analysis is in practice.

We'll also look at the circumstances where we might wish to be particularly aware of

real options.

Now, as the final module in the final course of a four course specialization,

it's not surprising that we're going to build

upon some of the earlier work that we considered.

Specifically, in this current module, we're going to assume that

you can recall what we mean by discounted cash flow analysis.

That is, how to discount cash flows as well as the foundation level of knowledge

with respect to options.

Now, if you are already across option fundamentals, well, then good.

Let's get started.

But, if you feel you need a refresher, then you'll find the introductory videos

that you need in the final module of the previous course in the specialization,

<i>Corporate Financial Decision-Making for Value Creation</i>.

It's only about 25 minutes of material, but it will stand you in good stead for

what's about to come.

Without further ado, let's get into it.

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