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| Author: | Sercu, P. Uppal, R. |
| Title: | International capital budgeting using option pricing theory |
| Journal: | Managerial Finance
1994 : VOL. 20:8, p. 3-21 |
| Index terms: | OPTION PRICES CAPITAL BUDGETING INTERNATIONAL |
| Language: | eng |
| Abstract: | In this article, the authors have shown that using the naive net present value criterion to make international capital budgeting decisions may not be appropriate if the investment decision involves an irreversible and postponable expenditure. Such decisions include new investments, entry into a new market, expansion of existing facilities, temporary suspension of operations or the abandonment of existing operations. The traditional NPV approach is static in that it ignores the flexibility that a manager has to make future investment decisions, and thereby, it underestimates the value of real investment. |
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