Real Options analysis may be still under developed. But with<strong>in</strong> the next few years,one important trend appear<strong>in</strong>g <strong>in</strong> the world would be the rapid migration <strong>of</strong> exist<strong>in</strong>gf<strong>in</strong>ancial option skills and models for use on <strong>real</strong> <strong>options</strong> (Howell, 2001). Brennan &Trigeorgis (2000): ―W here once the payback criterion reigned suprem e, ...discountedcash flow techniques … gradually ga<strong>in</strong>ed acceptance and now tend <strong>to</strong> have pride <strong>of</strong>place*; as yet, only a few corporations are beg<strong>in</strong>n<strong>in</strong>g <strong>to</strong> employ the <strong>real</strong> <strong>options</strong>paradigm that is derived from the classical f<strong>in</strong>ancial option pric<strong>in</strong>g paradigm <strong>of</strong>Black-S cho les and M er<strong>to</strong>n.‖Page | 70
References1. Amram M & Kulatilaka N (1999). Real Options: Manag<strong>in</strong>g Strategic Investment<strong>in</strong> an Uncerta<strong>in</strong> World. Bos<strong>to</strong>n: Harvard Bus<strong>in</strong>ess School Press2. Bode-Greuel K. (2000), Real Options E<strong>valuation</strong> <strong>in</strong> Pharmaceutical R&D: A newapproach <strong>to</strong> f<strong>in</strong>ancial project. Scrip Reports: PJB Publication Ltd3. Bode-Greuel K. (1997), F<strong>in</strong>ancial Project E<strong>valuation</strong> and Risk Analysis <strong>in</strong>Pharmaceutical Development, Scrip Reports4. Borison, A. (2005), ―Real Options Analysis: Where Are the Emperor‘s Clothes?‖,Journal <strong>of</strong> Applied Corporate F<strong>in</strong>ance, Vol. 17, No. 2, pg. 17-315. Brandao, L. E., Dyer, J. S. and Hahn, W. J. (2005), ―Us<strong>in</strong>g B<strong>in</strong>omial DecisionTrees <strong>to</strong> Solve Real-Option Valuation Problems‖, Decision Analysis, Vol. 2, No.2,June, pg.69-886. B<strong>real</strong>ey, R. A. and Myers, S. C. (2003), Pr<strong>in</strong>ciples <strong>of</strong> Corporate F<strong>in</strong>ance, 7 thedition, McGraw-Hill: US, pg.616-6347. Brennan, M.J. and Schwartz, E.S. (1985). ―Evaluat<strong>in</strong>g natural resource<strong><strong>in</strong>vestments</strong>‖. Journal <strong>of</strong> Bus<strong>in</strong>ess, 58, 135–157.8. Brennan M.J. and Trigeorgis L. (2000), Project flexibility, agency, andcompetition : new developments <strong>in</strong> the theory and <strong>application</strong> <strong>of</strong> <strong>real</strong> <strong>options</strong>,New York ; Oxford : Oxford University Press9. Bruun S. and Bason P. (2001) Literature on Real <strong>options</strong> <strong>in</strong> Venture capital andR&D, available at: http://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/opt1.pdf10. Copeland, T., and Tufano, P. (2004), ―A Real-World Way <strong>to</strong> Manage RealOptions‖, Harvard Bus<strong>in</strong>ess Review, Vol. 82, Issue 3, pg.90-9911. Copeland T and A ntikarov V . (2003), R eal O ptions: a P ractitioner‘s G uide. N ewYork: TexerePage | 71
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APPLICATION OF REAL OPTIONS VALUATI
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Table of ContentsAbstract .........
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List of TablesTable 5.1: Value of O
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Chapter One— IntroductionAs one o
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Then, in Chapter 4, the case study
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and we will have the right to take
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project, to get its salvage value,
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The option to switch:If assets have
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2.2 Advantages of Real Option Valua
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In the case of pharmaceutical R&D,
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delayed in time. Undertaking one pr
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Figure 2.2: Advantages and disadvan
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- Page 37 and 38: Figure 3.3: Comparison of a call op
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- Page 51 and 52: figure below:Figure 5.3: NPV of Dav
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- Page 57 and 58: of $345m at year 0 (which is $672.3
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- Page 81 and 82: 46. T rigeorgis L . (1995), ―M et