Options Embedded in Projects

In chapter 5, we examined the process for analyzing a project, and deciding whether or not to accept the project. In particular, we noted that a project should be accepted only if the returns on the project exceed the hurdle rate; in the context of cash flows and discount rates, this translates into projects with positive net present values. The limitation with traditional investment analysis, which analyzes projects on the basis of expected cash flows and discount rates, is that it fails to consider fully the myriad options that are usually associated with many projects.

In this section, we will analyze three options that are embedded in capital budgeting projects. The first is the option to delay a project, especially when the firm has exclusive rights to the project. The second is the option to expand a project to cover new products or markets some time in the future. The third is the option to abandon a project if the cash flows do not measure up to expectations.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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