Texaco: A Real Options Analysis

Discounted Cash Flow abstract versus Real natural selections Analysis agree to Chapter 13 of the Fundamentals of monetary Management text, the tralatitiousistic mode apply for evaluating detonator investments was the discounted gold flow (DCF) analysis method, which has been habituate since the fifties (Brigham & Houston, 2007, p. 416). The DCF method takes estimated specie flows and discounts them back to the expected dismiss pitch Value (NPV). In recent years, many companies, specially those in oil, energy and pharmaceutic industries have begun to make enceinte bud annoying decisions developing real options analysis (Sammer, 2002). This could be attributed to demonstrations over time that the handed-down DCF method may non lead to accurate jacket bud buming decisions (Brigham & Houston, 2007, p.416). As opposed to the childly DCF method, real options analysis takes into get the risks and rewards of future uncertainty or volatility (Paul-Choudhury, 1999). Many companies, the resembling Texaco, Inc. (now ChevronTexaco) are now tilted towards the real options method and using it as a panegyrical technique to the more traditional methods such as DCF and decision-tree analysis, instead of as a eject method of valuation (Benoît Couët et al., 2003).

Incorporating Real excerpt Analysis at Texaco Soussan Faiz, a former manager of globular valuation service at Texaco (Paul-Choudhury, 1999), was charged in the mid-1990s, with obtain whether the firm should maintain and tap a substantial, long-held operate in a developing terra firma or if they should exit the operate (Sammer, 2002). This had become a solution of debate among many of Texacos executive management team, in which some believed the lease to be worthless and wanted to use the proceeds from the sale for opposite capital investments, while others thought process it could prove to be bankable and was worth further exploitation (Benoît Couët et al., 2003). In gild to settle this sly decision, Faiz began by constructing a...If you want to get a full essay, order it on our website: Ordercustompaper.com

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