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Real Options Analysis and the Assumptions of Corporate Finance: A Non-Technical Review

Author

Listed:
  • Tom Arnold

    (University of Richmond, USA)

  • Richard Shockley

    (Indiana University, USA)

Abstract

This paper provides a non-technical presentation of the theoretical foundations of corporate financial decision making and the net present value (NPV) rule. Our objective is to show that the concepts of value and value creation arise from a single, unified framework that is firmly rooted in neoclassical microeconomic theory. This, in turn, allow us to demonstrate that the corporate valuation approach generically known as real options analysis is perfectly justifiable – without further qualification – in any situation when investors want managers to maximize NPV.

Suggested Citation

  • Tom Arnold & Richard Shockley, 2010. "Real Options Analysis and the Assumptions of Corporate Finance: A Non-Technical Review," Multinational Finance Journal, Multinational Finance Journal, vol. 14(1-2), pages 29-71, March-Jun.
    • Handle: RePEc:mfj:journl:v:14:y:2010:i:1-2:p:29-71
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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