Real options theory and strategic investment decisions: a case study in the Brazilian waterway sector

International Journal of Development Research

Volume: 
10
Article ID: 
19898
9 pages
Research Article

Real options theory and strategic investment decisions: a case study in the Brazilian waterway sector

João Carlos Félix Souza, João Gabriel de Moraes Souza, Carlos Henrique Rocha and Peng Yaohao

Abstract: 

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.

DOI: 
https://doi.org/10.37118/ijdr.19898.09.2020
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