Bestselling Valuation Books
Discussion weblog on valuation. Discuss best practices, ideas, news, models, methods, theories, tools, questions and answers.
After having been introduced by Timothy Luehrman in 1998, real options have had a difficult time catching on with managers. Often managers find options formulas too complex and some CFOs believe the method causes overvaluation of risky projects. This concern can be legitimate, but abandoning real options as a valuation model alltogether is also not the solution, according to Alexander B. van Putten and Ian C. MacMillan (HBR Dec04). They (correctly) state that companies that rely solely on discounted cash flow (DCF) analysis underestimate the value of their projects and may fail to invest enough in uncertain but highly promising opportunities.