Evaluating strategic investments: complementing discounted cash flow analysis with options analysis

Article Abstract:

Innovative strategy making is the key to superior performance for most businesses today. However, it frequently must be conducted in the midst of unpredictable and even chaotic circumstances and processes. Moreover, it often is frustrated by dogmatic reliance on traditional approaches to financial evaluation. In this study, we explore both the managerial and conceptual shortcomings of the traditional approach to evaluating strategic investments through discounted cash flow (DCF) analysis. We then describe a complementary technique introduced to internal financial evaluation from securities valuation, options analysis. We integrate these techniques in a combined DCF/options analysis model that combines insights from both techniques of investment analysis. The result is a process of evaluating strategic investment opportunities that takes a dynamic perspective on the strategy-making process. (Reprinted by permission of the publisher.)

Analysis, Investment analysis, Securities analysis, Discounted cash flow

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Evaluating the Capital Purchase of a New Technology

Article Abstract:

The role that the discount rate plays in the capital budgeting process for new technological innovations in industrial firms is examined. The difficulties in setting the discount rate are discussed. There is no uniformly optimal solution to creating a discount rate. Even so, tips on how to best set the discount rate are given. Discounted cash flow methods of setting the discount rate are based on sound theory, but care should be taken in their application.

Innovations, Economic aspects, Interest rates, Technology

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The Financial Benefits to Users of Foreign-Trade Zones

Article Abstract:

A general model for structuring the financial benefits of foreign-trade zone usage is presented. Types of benefits relevant to foreign-trade zone users are summarized. There are twelve zone-related benefits incorporated in the model. Results of a field test to establish the accuracy of the model are included. Users of foreign-trade zones save in security and tax-related costs. Financial analysts can use the model to estimate trade zone financial benefits.

Models, Free trade, Commerce

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