Real Options in Foreign Investment: A South American Case Study

39 Pages Posted: 20 Mar 2012

See all articles by Michael Naylor

Michael Naylor

Massey University - School of Economics and Finance

Jeffrey Boardman

Massey University - School of Economics and Finance

Date Written: March 15, 2012

Abstract

The levels of foreign investment globally have increased at a rapid pace during recent years. However valuing these investments is complex and involves additional risks. We argue that foreign investment opportunities can often be best structured as a series of investment options, and thus the investment appraisal should often be carried out using a real options framework.

The ability to expand globally is now a core corporate skill. Quality appraisals will assist businesses to make fundamentally better capital budgeting decisions. We illustrate the use of real option investment appraisal via a case study re-traces Force Corporation’s troubled investment via Village South America in Argentina. A FDI investment decision is recreated and evaluated.

Keywords: real options, foreign investment, property investment, project valuation

JEL Classification: G15, G31

Suggested Citation

Naylor, Michael and Boardman, Jeffrey, Real Options in Foreign Investment: A South American Case Study (March 15, 2012). Available at SSRN: https://ssrn.com/abstract=2022937 or http://dx.doi.org/10.2139/ssrn.2022937

Michael Naylor (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

Jeffrey Boardman

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

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