Incorporating real-options analysis into the accounting curriculum

Stout, David E.; Qi, Howard; Xie, Yan Alice; Liu, Sheen

doi:10.1016/j.jaccedu.2009.03.002

Cited by 5 publications

(5 citation statements)

References 9 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…"Defer", "abandon", "switch inputs, outputs or risky assets", "alter operating scale", "growth", "staged investments", "process", and "market" are examples for the mentioned types of real options in the related literature [35][36][37][38].…”

Section: Real Options Approachmentioning

confidence: 99%

“…In order to deal with risk and uncertainty in investment decisions, many methods and approaches have been suggested by researchers, such as adjusting discount rate, adjusting forecasted cash flows, using computer simulation (Monte Carlo), certainty equivalents, beta analysis (CAPM), sensitivity analysis, scenario planning, probability analysis (decision trees), real options model and fuzzy sets [4,19,20,23,24,27,36,[42][43][44]. Although some of these approaches are deemed more scientific, such as beta analysis, according to Alkaraan and Northcott [19], practitioners insist on using simpler and less sophisticated approaches, such as adjusted required rates of return, shortened payback periods and probability analysis.…”

Section: Risk and Uncertaintymentioning

confidence: 99%

See 1 more Smart Citation

A Strategic Investment Decision: “Internationalization of SMEs”: A Multiple Appraisal Approach and Illustration with a Case Study

Atik¹

2012

View full text Add to dashboard Cite

In a highly competitive environment, internationalization is a very attractive strategic investment for all types of firms. However, making the decision on internationalization, like other strategic investments, is very difficult because of high uncertainties and risks. Additionally, decision making process should include the evaluation of the strategic outcomes of internationalization. This study offers to integrate real options analysis into financial analyses in order not to overlook the strategic benefits of internationalization alternatives. A clear-cut approach which includes discounting methods and real options analysis is suggested and explained with a case study.

show abstract

Section: Real Options Approachmentioning

confidence: 99%

Section: Risk and Uncertaintymentioning

confidence: 99%

A Strategic Investment Decision: “Internationalization of SMEs”: A Multiple Appraisal Approach and Illustration with a Case Study

Atik¹

2012

View full text Add to dashboard Cite

show abstract

“…The case Appendix uses an options‐pricing model approach to incorporating real options into the analysis of capital budgeting proposals, such as the investment opportunity facing the Smith Company. An alternative approach of incorporating real options in the capital budgeting process via the use of decision trees is presented in Stout et al (2008, 2009).…”

Section: Notesmentioning

confidence: 99%

The Smith Company: a case on capital budgeting and real options

Shastri

Stout

2011

Managerial Finance

Self Cite

View full text Add to dashboard Cite

PurposeThis paper aims to provide upper‐level accounting and/or finance students with a review of the intricacies of option pricing, discounted cash flow (DCF) capital budgeting decision models, various types of real options, how risk analysis of long‐term capital investments can be facilitated by explicit consideration of real options, and the role of sensitivity analysis in the analysis of capital investment projects with real options.Design/methodology/approachThe paper describes a fictional company facing a risky capital investment proposal. Students evaluate the investment proposal using traditional DCF analysis (i.e. the net present value method), and then re‐run the analysis by incorporating the existence of real options into the analysis of the proposed investment. Finally, students see the value of using Crystal Ball software for conducting sensitivity analysis as part of the decision‐making process.FindingsThere are two primary conceptual lessons that students realize by completing this educational case: real‐options analysis is a conceptually correct and robust way to explicitly deal with project uncertainty, and failure to explicitly consider real options in the analysis of capital investment projects may result in suboptimal decision making.Originality/valueThis case covers all major real‐option topics required for the certified management accountant exam. Further, the case fills a void in the literature of accounting education as this literature pertains to the availability of case material regarding the use of real options as an extension to conventional capital budgeting techniques.

show abstract

“…The authors also provide descriptions and illustrations of cases that have been tested and that can be used in undergraduate and MBA courses. Stout, Qi, Xie, and Liu (2008) discuss how to incorporate real options when teaching capital budgeting; a lesson plan and case materials are included.…”

Section: Managerial and Cost Accountingmentioning

confidence: 99%