REAL OPTIONS APPLIED TO DECISION SUPPORT - AN INVESTMENT ANALYSIS IN RETAIL UNITS OPPENING

Examine the possibility of investments in projects through methods such as IRR, NPV and payback is very important to be checked the economic and financial viability of the companies. The objective of the study is to assess the impact of using real options in investment analysis to a case of a retail...

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Bibliographic Details
Published inICSB World Conference Proceedings pp. 1 - 6
Main Authors Benitez, Guilherme Brittes, Lima, Mateus José do Rêgo Ferreira, Valada, Gabriela Veeck
Format Conference Proceeding
LanguageEnglish
Published Washington International Council for Small Business (ICSB) 01.01.2017
Subjects
Case studies
Decision making
Decision trees
Discounted cash flow
Flexibility
Methods
Net present value
Present value
Real options analysis
Securities analysis
Theory
Volatility
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Summary:Examine the possibility of investments in projects through methods such as IRR, NPV and payback is very important to be checked the economic and financial viability of the companies. The objective of the study is to assess the impact of using real options in investment analysis to a case of a retail company. The methodology used in this case study was to compare the estimated net present value of an investment project calculated using two different methods, discounted cash flow and real options. The results for the analyzed case show that the value of the project after the inclusion of managerial flexibility increased significantly, indicating that the examination by the discounted cash flow undervalues the investment in question, and the flexibility to expand or abandon added value to estimate net present value of the project.