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Real Options Analysis And The Assumptions Of Corporate Finance: A Non-Technical Review, Tom Arnold, Richard L. Shockley Jr.
Real Options Analysis And The Assumptions Of Corporate Finance: A Non-Technical Review, Tom Arnold, Richard L. Shockley Jr.
Finance Faculty Publications
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.
Adding Depth To The Discussion Of Capital Budgeting Techniques, Tom Arnold, Terry D. Nixon
Adding Depth To The Discussion Of Capital Budgeting Techniques, Tom Arnold, Terry D. Nixon
Finance Faculty Publications
The subject of capital budgeting generally encompasses a significant percentage of any beginning finance course with net present value (NPV) often receiving the most attention. Even after this substantial time allotment, critical assumptions and comparisons of the different techniques (such as payback period, discounted payback period, NPV and IRR) are frequently glossed over due to time constraints. Consequently, the goal of this paper is to present these non-NPV techniques in a manner that allows the beginning finance student to expeditiously see the intuition, inherent assumptions, and any connection with the more popular NPV calculation. A small portion of this paper …