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Uncertainty, Irreversibility, And Investment In Secondgeneration Biofuels, Tanner Joseph Mccarty
Uncertainty, Irreversibility, And Investment In Secondgeneration Biofuels, Tanner Joseph Mccarty
Open Access Theses
The present study formalizes and quantifies the importance of uncertainty for investment in a corn-stover based cellulosic biofuel plant. Using a real options model we recover prices of gasoline that would trigger entry into the market and calculate the portion of that entry trigger price required to cover cost and the portion that corresponds to risk premium. We then discuss the effect of managerial flexibility on the entry risk premium and the prices of gasoline that would trigger mothballing, reactivation, and exit. Results show that the risk premium required by plants to enter the second-generation biofuel market is likely to …