Real options in capital budgeting decisions

Problem 1. What are real options? Why is it important for managers to determine the value of real options in capital budgeting decisions? Using an example explain how you can determine the value of a real option in the capital budgeting decision. In your response, include an example (use research article to answer the question).

Problem 2. Identify the tools and techniques available to mangers in the area of forecasting and planning. Discuss how you will use these tools to forecast sales and prepare a ?nancial plan for you company.

Problem 3. Discuss the traditional argument that the ?rm can lower its cost of capital and increase market value of the ?rm using leverage and the non-traditional argument that leverage is irrelevant. Based on the understanding of the two sides, which approach will you use if you have to make a decision on capital structure in your ?rm.

Problem 4. Distinguish between operating leases and ?nancial leases. Would you be more likely to ?nd an operating lease employed for a ?eet of aircraft or a manufacturing plant? Explain.

Problem 5. Select a company (domestic or international) who is planning to issue an IPO in next few months and evaluate their company's prospects (focus on future ?nancial performance), management presentations, analyst reviews, and experts' opinion to determine the potential success of the issue. In your discussion include factors such as pricing, timing, and potential for pro?ts for investors.

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Finance Basics: Real options in capital budgeting decisions
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