Real options Flashcards
1
Q
What are real options?
A
Real options are the alternatives or choices that may arise as a result of doing an investment
2
Q
What are the five real options?
A
1) Follow on
2) Abandonment
3) Timing
4) Growth
5) Flexibility
3
Q
Explain follow on options
A
E.G. The experience gained from the initial investment grants the right to use that technology in the future - R&D
4
Q
Explain abandonment options
A
The option to mitigate losses if the project is unsuccessful
5
Q
Explain timing options.
A
E.G. Having the ability to ‘wait & see’
6
Q
Explain growth options
A
Ability to develop a project further
7
Q
Explain flexibility options
A
E.G - Creating a power station that can use gas and nuclear - e.g future proofing
