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A Pragmatic Guide to Real OptionsImplementing an NPV-Embedded Binomial Tree from an NPV Analysis

A Pragmatic Guide to Real Options: Implementing an NPV-Embedded Binomial Tree from an NPV Analysis [In the previous two chapters a number of different real options were implemented using net present value or NPV-embedded binomial trees. In chapter 5, a five-year project had cash flows forecasted through a binomial tree, which was then converted into an NPV-embedded binomial tree. There was an initial value for the cash flow that was forecasted forward using the multipliers “U” and “D.” Then mean future cash flows were discounted backward through the tree to produce an NPV calculation at the beginning of the tree.] http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png

A Pragmatic Guide to Real OptionsImplementing an NPV-Embedded Binomial Tree from an NPV Analysis

Arnold, Tom
Springer Journals — Nov 12, 2015
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21 pages

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Publisher
Palgrave Macmillan US
Copyright
© Palgrave Macmillan, a division of Nature America Inc. 2014
ISBN
978-1-349-48301-3
Pages
145 –166
DOI
10.1057/9781137391162_7
Publisher site
See Chapter on Publisher Site

Abstract

[In the previous two chapters a number of different real options were implemented using net present value or NPV-embedded binomial trees. In chapter 5, a five-year project had cash flows forecasted through a binomial tree, which was then converted into an NPV-embedded binomial tree. There was an initial value for the cash flow that was forecasted forward using the multipliers “U” and “D.” Then mean future cash flows were discounted backward through the tree to produce an NPV calculation at the beginning of the tree.]

Published: Nov 12, 2015

Keywords: Cash Flow; Real Option; Future Cash Flow; Discount Cash Flow; Binomial Tree

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