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real options basically are additional benefits other than npv in the project
1. are there other examples in the syllabus or other strategic benefits other than the option price,
2.Is the real option a call option or put option?
You must work through the lectures in order, and you must have a Revision Kit from one of the ACCA approved publisher and work through all of the questions in it.
Your first question does not make sense – an option price is not a strategic benefit!
Your second question is answered and explained in both the lecture notes and the lectures – it can be a call or put depending on what type of option it is (option to delay, option to expand, etc. etc..)
yes sir i saw your lectures on it and im clear now thanks, but i dont get what basically real options are used for? there are something extra over the npv we generate i know that much
It is not that real options are used for anything. They are more realistic – if, for example, a company decided to invest in a project but after a few years decides that things are not going as well as expected, then they usually are able, if they, want to simply close down the project. Normal NPV analysis ignores this possibility and assesses the project on the assumption it will continue for the estimated life. If choices such as that above are available, then it should be taken into account when deciding whether or not to invest.
Valuing options tries to take this into account (the problem however being estimating the variables (such as the standard deviation) that we use in the formula.ok sir great thanks alot, i get that options basically are involved in the calculations if we have options available to us
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