E-Book Overview
To invest or not to invest? Business leaders frequently are faced with this question on new and ongoing projects. The challenge lies in deciding what projects to choose, expand, contract, defer, or abandon. The project valuation tools used in this process are vital to making the right decisions. Traditional tools such as discounted cash flow/net present value assume a "fixed" path ahead. But real world projects face uncertainties, forcing you to change the path often. This book introduces a more practical approach to project valuation known as real options analysis. Derived from options theory in modern finance, this approach is based on the Nobel Prize–winning work of three MIT economists. <strong>Project Valuation Using Real Options provides a systematic approach to project valuation that will enable you to minimize investment risks, exercise flexibility in decision making, and maximize returns. <strong>Key Features • Discusses why traditional valuation methods such as discounted cash flow, net present value and decision tree analysis are not sufficient in today's uncertain world • Explains the real options approach in a step-by-step manner which is easily understood and does not require an extensive financial background on the part of the reader • Shows you how to make the correct investment decisions, achieve strategic alignment of projects, increase project flexibility, and sustain competitive advantage • Presents multiple scenarios and real world examples from technology, telecommunications, pharmaceuticals, and other industries to illustrate success stories, challenges, and the true value of real options analysis • WAV offers free downloadable assessment tools and solutions to problems presented in the book — available from the Web Added Value™ Download Resource Center
E-Book Content
Project Valuation Using Real Options A Practitioner’s Guide
J. Ross Publishing; All Rights Reserved
J. Ross Publishing; All Rights Reserved
Project Valuation Using Real Options A Practitioner’s Guide
Dr. PRASAD KODUKULA, PMP CHANDRA PAPUDESU
J. Ross Publishing; All Rights Reserved
Copyright ©2006 by J. Ross Publishing, Inc. ISBN 1-932159-43-6 Printed and bound in the U.S.A. Printed on acid-free paper 10 9 8 7 6 5 4 3 2 1
Library of Congress Cataloging-in-Publication Data Kodukula, Prasad. Project valuation using real options : a practitioner’s guide / by Prasad Kodukula and Chandra Papudesu. p. cm. Includes bibliographical references and index ISBN 1-932159-43-6 (hardcover : alk. paper) 1. Real options (Finance). 2. Investments. 3. Project management. I. Papudesu, Chandra. II. Title. HG6042.K62 2006 658.15′5—dc22 2006005534 This publication contains information obtained from authentic and highly regarded sources. Reprinted material is used with permission, and sources are indicated. Reasonable effort has been made to publish reliable data and information, but the author and the publisher cannot assume responsibility for the validity of all materials or for the consequences of their use. All rights reserved. Neither this publication nor any part thereof may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. The copyright owner’s consent does not extend to copying for general distribution for promotion, for creating new works, or for resale. Specific permission must be obtained from J. Ross Publishing for such purposes. Direct all inquiries to J. Ross Publishing, Inc., 5765 N. Andrews Way, Fort Lauderdale, Florida 33309. Phone: (954) 727-9333 Fax: (561) 892-0700 Web: www.jrosspub.com
J. Ross Publishing; All Rights Reserved
TABLE OF CONTENTS
Preface .....................................................