Define each of the following terms: h. Real options; managerial options; strategic options; embedded options

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter14: Real Options
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Define each of the following terms: h. Real options; managerial options; strategic options; embedded options

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Real options

Real options involves the ability to choose the right business opportunity that bears a significant effect on the company’s profitability and growth. Thus, real options involve right but not an obligation to make a particular business decision after  analyzing and evaluating business opportunities and choose the right one.

The most common types of real options are: option to abandon, option to wait, option to switch, option to expand, and option to contract.

Managerial options-

Managerial options involves methods and strategies for:

  • reducing total risk of company through portfolio diversification process.
  • increasing compensation of management .
  • using incentives to reduce agency risk.
  • changing future decisions of management
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