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Real options valuation
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<p>Real options valuation, also often termed real options analysis, (ROV or ROA) applies <a href="/facts/Option_(finance)/5gJFXV3X">option</a> <a href="/facts/Valuation_of_options/11Ft9oEA">valuation techniques</a> to <a href="/facts/Capital_budgeting/YRvRMxu7">capital budgeting</a> decisions. A real option itself, is the right—but not the obligation—to undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a <a href="/facts/Project/7pXnTsmF">capital investment project</a>. For example, real options valuation could examine the opportunity to invest in the expansion of a firm's factory and the alternative option to sell the factory. Real options are most valuable when uncertainty is high; management has significant flexibility to change the course of the project in a favorable direction and is willing to exercise the options. </p>