Principles of Corporate Finance

Slides:



Advertisements
Similar presentations
Principles of Corporate Finance
Advertisements

Principles of Corporate Finance
Chapter 19 Financing and Valuation Principles of Corporate Finance
Chapter 30 Short-Term Financial Planning
22 Real Options McGraw-Hill/Irwin
Chapter 20 Understanding Options Principles of Corporate Finance
6- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
CORPORATE FINANCIAL THEORY Lecture 3. Interest Rate Cash Flow Interest Rate and Cash Flow - REALITY Is not guaranteed Has many different sources.
11- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
 Real Options Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 21 © The McGraw-Hill Companies, Inc., 2000.
© The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill Chapter 22 Options and Corporate Finance: Extensions and Applications  Real Options 
Derivatives & Options Historical Topics (Internal to the Corp) 1 - Capital Budgeting (Investment) 2 - Capital Structure (Financing) Today We are leaving.
Chapter 8 Principles PrinciplesofCorporateFinance Tenth Edition Portfolio Theory and the Capital Asset Pricing Model Slides by Matthew Will Copyright ©
10- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
An Overview of Corporate Financing Principles of Corporate Finance Seventh Edition Richard A. Brealey Stewart C. Myers Slides by Matthew Will Chapter 14.
The Dividend Controversy Principles of Corporate Finance Seventh Edition Richard A. Brealey Stewart C. Myers Slides by Matthew Will Chapter 16 McGraw Hill/Irwin.
8- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
12- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
 Making Investment Decisions with the Net Present Value Rule Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter.
The McGraw-Hill Companies, Inc., 2000
© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Options and Corporate Finance Chapter Fourteen.
Chapter 6 Principles of Corporate Finance Eighth Edition Making Investment Decisions With the Net Present Value Rule Slides by Matthew Will Copyright ©
Chapter 35 Principles PrinciplesofCorporateFinance Ninth Edition Conclusion: What We Do And Do Not Know About Finance Slides by Matthew Will Copyright.
13- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
1- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
 Introduction to Risk, Return, and the Opportunity Cost of Capital Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will.
Chapter 23 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.
The McGraw-Hill Companies, Inc., 2000
Chapter 15 How Corporations Issue Securities
19- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
Chapter 2 Present Value and The Opportunity Cost of Capital
Making Investment Decisions with the Net Present Value Rule Principles of Corporate Finance Seventh Edition Richard A. Brealey Stewart C. Myers Lu Yurong.
 Conclusion: What We Do and Do Not Know about Finance Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 35.
Making Investment Decisions With the Net Present Value Rule
Chapter 9 Project Analysis Fundamentals of Corporate Finance
Chapter 21 Principles PrinciplesofCorporateFinance Ninth Edition Understanding Options Slides by Matthew Will Copyright © 2008 by The McGraw-Hill Companies,
2007 Page 1 F. MICHAUX CORPORATE FINANCE Financial and Real Options.
Understanding options
Does Debt Policy Matter ? Principles of Corporate Finance Seventh Edition Richard A. Brealey Stewart C. Myers Slides by Matthew Will Chapter 17 McGraw.
18- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
A Project Is Not a Black Box Principles of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Lu Yurong Chapter 10 McGraw Hill/Irwin.
Chapter 22 Principles of Corporate Finance Eighth Edition Real Options Slides by Matthew Will Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights.
4- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
Where Positive Net Present Values Come From Principles of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Lu Yurong Chapter 11 McGraw.
Warrants and Convertibles Principles of Corporate Finance Seventh Edition Richard A. Brealey Stewart C. Myers Slides by Matthew Will Chapter 23 McGraw.
7- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
How To Calculate Present Values Principles of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Lu Yurong Chapter 3 McGraw Hill/Irwin.
15- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
Chapter 2 Financial Markets and Institutions
Corporate Financing and the Six Lessons of Market Efficiency Principles of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Lu Yurong.
Principles of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Lu Yurong Chapter 8 McGraw Hill/Irwin Risk and Return.
Chapter 22 Principles of Corporate Finance Tenth Edition Real Options Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies,
17- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.
Principles of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Lu Yurong Chapter 9 McGraw Hill/Irwin Capital Budgeting and Risk.
2- 1 Chapter Approach  Chapter 2  Financial Markets  Road to success with this chapter material Read Chapter 2 first Print the chapter handout Take.
Chapter 9 Fundamentals of Corporate Finance
Chapter 1 Principles PrinciplesofCorporateFinance Ninth Edition Finance and The Financial Manager Slides by Matthew Will Copyright © 2008 by The McGraw-Hill.
1- 1 CURRICULUM  Introduction: goal of the firm  Financial markets and institutions, accounting and finance  Measuring corporate performance  Long-term.
Chapter 29 Principles PrinciplesofCorporateFinance Ninth Edition Financial Analysis and Planning Slides by Matthew Will Copyright © 2008 by The McGraw-Hill.
Chapter 2 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.
Chapter 14 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.
Chapter 8 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.
Making Investment Decisions With the Net Present Value Rule
Making Investment Decisions With the Net Present Value Rule
Principles of Corporate Finance
Chapter 21 Valuing Options Principles of Corporate Finance
Fundamentals of Corporate Finance
Chapter 23 Real Options Principles of Corporate Finance Ninth Edition
Making Investment Decisions With the Net Present Value Rule
Presentation transcript:

Principles of Corporate Finance Seventh Edition Richard A. Brealey Stewart C. Myers Chapter 22 Real Options Slides by Matthew Will McGraw Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved

Topics Covered Follow Up Investments Abandon Wait Vary Output or Production

Corporate Options 4 types of “Real Options” 1 - The opportunity to make follow-up investments. 2 - The opportunity to abandon a project 3 - The opportunity to “wait” and invest later. 4 - The opportunity to vary the firm’s output or production methods. Value “Real Option” = NPV with option - NPV w/o option 37

Option to Wait Intrinsic Value Option Price Stock Price

Option to Wait Intrinsic Value + Time Premium = Option Value Time Premium = Vale of being able to wait Option Price Stock Price

Option to Wait More time = More value Option Price Stock Price

Option to Abandon Example - Abandon Mrs. Mulla gives you a non-retractable offer to buy your company for $150 mil at anytime within the next year. Given the following decision tree of possible outcomes, what is the value of the offer (i.e. the put option) and what is the most Mrs. Mulla could charge for the option? Use a discount rate of 10% 38

Option to Abandon Example - Abandon Year 0 Year 1 Year 2 120 (.6) Mrs. Mulla gives you a non-retractable offer to buy your company for $150 mil at anytime within the next year. Given the following decision tree of possible outcomes, what is the value of the offer (i.e. the put option) and what is the most Mrs. Mulla could charge for the option? Year 0 Year 1 Year 2 120 (.6) 100 (.6) 90 (.4) NPV = 145 70 (.6) 50 (.4) 40 (.4) 39

Option to Abandon Option Value = 162 - 145 = $17 mil Example - Abandon Mrs. Mulla gives you a non-retractable offer to buy your company for $150 mil at anytime within the next year. Given the following decision tree of possible outcomes, what is the value of the offer (i.e. the put option) and what is the most Mrs. Mulla could charge for the option? Year 0 Year 1 Year 2 120 (.6) 100 (.6) 90 (.4) NPV = 162 150 (.4) Option Value = 162 - 145 = $17 mil 40

Corporate Options Reality Decision trees for valuing “real options” in a corporate setting can not be practically done by hand. We must introduce binomial theory & B-S models 41

Feedback: Privacy Policy Feedback
Do Not Sell My Personal Information
About project: SlidePlayer Terms of Service

© 2025 SlidePlayer.com. Inc. All rights reserved.