AFM203 Chapter Notes - Chapter 3: Real Options Valuation, Monte Carlo Method, Scenario Analysis
26 Oct 2016
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The conventional tools we learned in school works when we"re in a stable environment, with a business model you understand and access to sound information. Less useful when we"re in a fast changing industry, launching a new kind of product, or shifting to a new business model. Model for matching the decision-making tool to the decision at hand: how well you understand the variables that will determine success, how well you can predict the range of possible outcomes, how centralized the relevant information is. List and explain the 5 tools available for decision support. Conventional capital- budgeting tools discounted cash flow, expected rate of return. Can be misleading if you keep on using this. Putting together information from multiple sources (experts, surveys) These tools use the estimated incremental cash flows from potential investments to establish whether a project is wroth being funded or not. Pv of incremental cash inflows less pv of incremental cash outflows.
