Define each of the following terms:
a. Real option; managerial option; strategic option; embedded option
Real option: A real option is a desirable economic privilege or to give up a selection, often in respect of company ventures or investments, which is open to the executives of a firm.
This is alluded to as "real" since it usually applies to ventures containing a tangible asset, rather than a financial instrument (such as equipment, land and property and stock). Real options also vary from agreements for financial options because they contain real "underlying" (i.e. physical) assets and are not exchangeable because of securities.
Managerial option: The cash streams in a venture on capital budgeting were discounted and their real value was decreased. Even so, until they are approved, investment proposals aren't always in stone. Managers can make adjustments that impact future cash flows and/or venture life and can and always do so. Slavish dedication to DCFs also lacks the versatility of future management, which is to alter older choices as circumstances change.
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