What Is So Real About Real Options, and Why Are They Optional?

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What Is So Real About Real Options, and Why Are They Optional?

Johnathan Mun

Description

In the past, corporate investment decisions were cut and dried. Buy a new machine that is more efficient, make more products costing a certain amount, and if the benefits outweigh the costs, execute the investment. Hire a larger pool of sales associates, expand the current geographical area, and if the marginal increase in forecast sales revenues exceeds the additional salary and implementation costs, start hiring. Need a new manufacturing plant? Show that the construction costs can be recouped quickly and easily by the increase in revenues the plant will generate through new and improved products, and the initiative is approved.

However, real-life business conditions are a lot more complicated. Your firm decides to go with an e-commerce strategy, but multiple strategic paths exist. Which path do you choose? What are the options you have? If you choose the wrong path, how do you get back on the right track? How do you value and prioritize the paths that exist? You are a venture capitalist firm with multiple business plans to consider. How do you value a start-up firm with no proven track record? How do you structure a mutually beneficial investment deal? What is the optimal timing to a second or third round of financing?

This chapter provides a novel approach to applying real options to answering these issues and more.

About the Author

JOHNATHAN MUN, PhD, is the founder and CEO of Real Options Valuation, Inc., and the creator of the Real Options Super Lattice Solver software for real options valuation, Monte Carlo Risk Simulator, and multiple other analytics software tools. Prior to starting his own firm, he was the vice president of analytics at Oracle/Crystal Ball. Mun is also a full professor at the U.S. Naval Postgraduate School (California) and the University of Applied Sciences (Switzerland and Germany). He has authored numerous books, including Real Options Analysis, Real Options Analysis Course, Advanced Analytical Models, Applied Risk Analysis, Modeling Risk, and Valuing Employee Stock Options (all published by Wiley), as well as coauthored The Banker's Handbook on Credit Risk. Mun has also taught and consulted for over 500 corporations in thirty countries worldwide and is considered a leading authority on risk analysis and real options.

Series

Wiley Global Finance Executive Select

To Purchase this product, please visit

https://dev.store.wiley.com/en-sg/What+Is+So+Real+About+Real+Options%2C+and+Why+Are+They+Optional%3F-p-9781118006337