Question

Give an example in business for each of the following real options with clear explanations. If you manage to put some numbers in your examples and sketch how you may value such optionality the better but not required. The option to expand if the immediate investment project succeeds. The option to wait (and learn) before investing. The option to shrink or abandon a project.

Provide answers with examples please

Answer 1

The real options in business is just the same way that we apply in our real life. In our life as well we make decisions to live the life accordingly to the situations that are in front of us. We make the decision whether to take a step or not if we are taking a step than what will be the impact of that on us and if in case we are not taking than what will be the impact of it on us. Like this we have to make decisions in our business life as well regarding the investments. If we are investing than what we have to do and if in case we are not investing than will it be affecting to us or not.

In business if we talk about than there are two person one is we ourself and the other ones are our competitors which also plays a major role with decisioning of investment in the real life as well.

The option to expand if the immediate investment project succeeds; The option to wait and learn; and the option to shrink or abandon the project.