Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 22, Problem 18PS

Real options Respond to the following comments.

  1. a. “You don’t need option pricing theories to value flexibility. Just use a decision tree. Discount the cash f lows in the tree at the company cost of capital.”
  2. b. “These option pricing methods are just plain nutty. They say that real options on risky assets are worth more than options on safe assets.”
  3. c. “Real-options methods eliminate the need for DCF valuation of investment projects.”
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