Real options are valuable sources of flexibility that are either inherent in, or can be built into, corporate assets. The value of such options are generally not captured by the standard discounted cash flow (DCF) approach, but can be estimated using a variant of financial option pricing...

In these extracts from the world's bestselling graduate textbook, the authors offer a number of suggestions for practitioners, including: - When valuing a company or an investment project, managers should start whenever possible with the asset's market price as the best initial estimate and then...