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Appraisal of shipping investment projects using real options

Appraisal of shipping investment projects using real options
Appraisal of shipping investment projects using real options
This chapter intends to describe the use of real options in shipping providing simple practical examples. Shipping companies operate in a highly volatile market where their investment decisions are of vital importance. The main advantage of real options analysis (ROA) over the discount cash flows (DCF) methods is that it can properly capture the managerial flexibility related to an investment. A question that arises at this point is why investment analysts in the shipping industry should use ROA to assess their investment since real options seem at first sight more complicated than the simpler DCF methods. The chapter explains the real options analysis in a simple way. It also explains the superior position of ROA relative to alternative capital budgeting techniques. The chapter briefly describes the main real options in shipping industry which are the option to expand, the option to defer, the option to abandon, the option to contract, the option to switch, and growth options.
233-247
Routledge
Andreou, Christoforos
7e3cbbe0-1d81-407d-aa00-acee91c04d9a
Lambertides, Neophytos
72605971-9577-486d-9800-38a7f072a2c6
Panayides, Photis M.
ccf6affe-2eb8-45fa-abcd-d0419353da64
Andreou, Christoforos
7e3cbbe0-1d81-407d-aa00-acee91c04d9a
Lambertides, Neophytos
72605971-9577-486d-9800-38a7f072a2c6
Panayides, Photis M.
ccf6affe-2eb8-45fa-abcd-d0419353da64

Andreou, Christoforos, Lambertides, Neophytos and Panayides, Photis M. (2019) Appraisal of shipping investment projects using real options. In, The Routledge Handbook of Maritime Management. (HASH(0xd1fd678)) Routledge, pp. 233-247. (doi:10.4324/9781315617138-15).

Record type: Book Section

Abstract

This chapter intends to describe the use of real options in shipping providing simple practical examples. Shipping companies operate in a highly volatile market where their investment decisions are of vital importance. The main advantage of real options analysis (ROA) over the discount cash flows (DCF) methods is that it can properly capture the managerial flexibility related to an investment. A question that arises at this point is why investment analysts in the shipping industry should use ROA to assess their investment since real options seem at first sight more complicated than the simpler DCF methods. The chapter explains the real options analysis in a simple way. It also explains the superior position of ROA relative to alternative capital budgeting techniques. The chapter briefly describes the main real options in shipping industry which are the option to expand, the option to defer, the option to abandon, the option to contract, the option to switch, and growth options.

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Published date: 9 July 2019

Identifiers

Local EPrints ID: 451783
URI: http://eprints.soton.ac.uk/id/eprint/451783
PURE UUID: 12673d7b-7721-4cf8-b366-32effb679a2c
ORCID for Christoforos Andreou: ORCID iD orcid.org/0000-0002-5395-4807

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Date deposited: 27 Oct 2021 16:32
Last modified: 28 Apr 2022 02:33

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Contributors

Author: Neophytos Lambertides
Author: Photis M. Panayides

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