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Username: Fluffy

Rating:
Guru Stars

Asked to: Talitha Taslim

Date Created: 16 Nov 2017
Category 28
Tag Financial
Question What is a 'Real Option'?
Advice from Guru
Hello Fluffy,

A real option is a choice made available with business investment opportunities, referred to as “real” because it typically references a tangible asset instead of financial instrument. Real options are choices a company’s management makes to expand, change or curtail projects based on changing economic, technological or market conditions. Factoring in real options impacts the valuation of potential investments, although commonly used valuations, such as net present value (NPV), fail to account for potential benefits provided by real options.

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