Real options theory and strategic investment decisions: a case study in the Brazilian waterway sector
International Journal of Development Research
Real options theory and strategic investment decisions: a case study in the Brazilian waterway sector
Received 11th June 2020; Received in revised form 27th July 2020; Accepted 08th August 2020; Published online 30th September 2020
Copyright © 2020, João Carlos Félix Souza et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
The present work is aimed at applying Real Options Theory for the analysis of an investment project related to the removal of the Pedral do Lourenço rock formation, on the Tocantins River waterway in Brazil. A discussion was made as to the merits of this approach for the evaluation of investment projects by decision makers and by incorporating managerial flexibility, especially with regards to the use of public funds, as was the case analyzed by this article. The results indicated that the options to delay and expand provide greater attractiveness than the classic and inflexible net present value approach, leading to the conclusion that the eventual application of those strategies would result in significant increases to the expected profitability of the project.
