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Value Creation through the Real Option to Delay an Investment Project

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  • Nicoleta VINTILA

Abstract

The focus of this article is to capture how we can create more value by using real options as a tool adding flexibility to managerial decisions. Similar to financial options, we define and explain the parameters that we need to estimate and include in the valuation models (Black-Scholes or binomial). The concrete steps taken in the application of these models are shown in a case study dwelling on the valuation of the deferred investment option for a ceramic tile manufacturing facility. Besides the estimation of the option value and its interpretation, we have joined a sensitivity analysis of the value estimation, based on the main parameters (volatility and maturity), thus making it possible to identify the optimal moment to exercise the option, to carry out the project and enter the market.

Suggested Citation

  • Nicoleta VINTILA, 2015. "Value Creation through the Real Option to Delay an Investment Project," The Valuation Journal, The National Association of Authorized Romanian Valuers, vol. 10(2), pages 86-100.
    • Handle: RePEc:vaj:journl:v:10:y:2015:i:2:p:86-100
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    More about this item

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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