The oil and mining industries and electrical service were the first to use the methodology of Real Options, due to the amount of capital invested, the duration of the investment and the high level of uncertainty.
Since then, pharmaceutical, manufacturing, high technology and communications have adopted this technique for the same reasons as now all companies operate in an uncertain economic environment, coupled with a growing demand level risk management.
The real options analysis, formalizing uncertainty, give a clearer picture of market conditions or technological hazards. It provides the decision maker a representation of all the opportunities offered by the project, which helps to take advantage of managerial flexibility is available.
The ownership of a mine are an option to extract minerals. A patent gives you the option of developing a new product. A plant has the option of expansion : making an additional investment , we can increase revenue and achieve better profitability. The investment in a factory with lower initial construction costs and higher operating costs, creates the flexibility to reduce operating costs if the product turns out to be less interesting than originally planned.
The acquisition of a company unrelated to the parent company provides optional access to a new market activity. The liabilities of a company can be considered a call or put option on the value of the company as shown by the Margin Trading Crypto.
The rationale of Myers is simple: there is a gap between financial theory and strategy. The difficulty of bringing these two disciplines can be explained by differences in terminology and culture. Strategic analysis using little or poor discount flow methods and when updating methods are applied with rigor, they fail.
Typical errors in the use of discounting methods involve giving primacy to TRI, the mistreatment of inflation or the use of inappropriate discount rate. Apart from the technical limitations, Myers said the inability of the NPV to consider future opportunities. Indeed, a project A can generate the opportunity to invest in a project B very profitable thanks to Margin Trading Crypto.
However, since the decision to invest in B does not happen at the same time as the decision to invest in A, its analysis is postponed and an opportunity is lost. This limit is entirely due to rigorous practice evaluation methods by flows.
Moreover, the supremacy of financial decision disturbing. Policy makers are often seen as more susceptible to financial analysis and not enough on other aspects of business life (technology, products, productivity). Allegedly more interested in mergers and acquisitions, spin-off or financial engineering to operational activity, they are believed to be more interested in the short.
