What are the applications of real options in business?

What are the applications of real options in business?

Real options are used in business to evaluate investment opportunities, manage risk, and make strategic decisions.

Can you give me an example of how a company might use real options?

Sure! A tech company might use real options to decide whether to invest in a new product line, weighing potential future profits against current costs.

How do real options differ from traditional NPV analysis?

Unlike traditional NPV, real options consider the value of flexibility and the ability to adapt decisions based on market changes.

What industries benefit the most from real options analysis?

Industries like technology, pharmaceuticals, and energy often benefit the most due to their high uncertainty and investment costs.

Are there any limitations to using real options?

Yes, limitations include complexity in modeling and the need for accurate data, which can be challenging to obtain.