Some assets derive value from choices โ the option to expand, delay, or abandon. Real options capture this flexibility that DCF misses.
FV, r, n) โ or type numbers directly: 10000 / (1 + 0.08)^1010000 / (1 + 0.08)^10Standard DCF assumes you make a decision once and lock in. But real businesses have choices: expand into a new market, delay an investment, or shut down a failing project. Real options value those choices.
Real Option Value = value of managerial flexibility. A patent gives you the option to commercialise a drug โ that option has value even before the drug is approved. An oil field gives you the option to drill โ valuable even when oil prices are low.