Session 25: Undeveloped Reserves and Options to Expand and Delay

In this quiz-shortened session, we continued with our discussion of real options, starting with an analysis of undeveloped natural resources are options and why the value of natural resource companies are affected by both the level and volatility in the prices of the commodity/natural resource. We followed up with the excitement of being able to add premiums to discounted cash flow valuation, in the option to expand, and concluded with the option to abandon, and how that ties into the benefits of flexibility to companies.
Slides: pages.stern.ny...
Post class test: pages.stern.ny...
Post class test: pages.stern.ny...

[@pauljones9150]

Class starts at 2:12

[@mateogjinali764]

I'm not sure why a 3% excess return is equivalent to a return of 1.25 on a dollar. How do you convert excess returns to this 1.25:1 ratio. I understan why a 0% excess return means that you don't generate any excess value but why is 3% turning into 25%