Real Options and Rules of Thumb in Capital Budgeting

By R. McDonald. 2000

132 citations recorded by the source corpus.

View Paper: https://www.semanticscholar.org/paper/ea18d685efb054ce2e7d1f01e9d51593fd4f1781

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Citations in the corpus

Real Options, Irreversible Investment and Firm Uncertainty: New Evidence from U.S. Firms (2005, unknown): “Although a majority of firms may not actually be employing real options techniques yet, McDonald (2000) points out that arbitrary methods such as hurdle rates and profitability indexes can actually approximate the optimal decision under real options, i.e. the same factors that increase the value of ”
The Theory and Practice of Corporate Finance: Evidence from the Field (2001, unknown): “McDonald (1998) notes that rules of thumb such as payback and hurdle rates can approximate optimal decision rules that account for the option-like features of many investments, especially in the evaluation of very uncertain investments.”
Why Do Firms Use High Discount Rates (2016, background): “McDonald (1999) and Jagannathan and Meier (2002) argue that firms with limited managerial or organizational capital may not be able to take every positive NPV project that is currently available to them if the managers expect to get even better investment opportunities in the future.”
Capital Allocation and Delegation of Decision-Making Authority within Firms (2014, background): “McDonald (1998) notes that a payback rule of thumb can approximate optimal decision rules that account for option-like features of many investments.”
Sunk Costs, Uncertainty and Market Exit: A Real Options Perspective (2009, background): “Even when firms lack formal option pricing techniques, managers will often employ relatively accurate “rules of thumb” to account for the value of real options (McDonald, 2000).”
An attention-based view of real options reasoning (2008, unknown): “Many establish hurdle rates and use “rules of thumb” that tacitly account for the value of management’s ability to respond to changing circumstances as projects unfold (McDonald, 2000).”
Research and Development, Cash Flow, Agency and Governance: UK large companies (2012, background): “The option to wait (where uncertainty and fixed cost feature) leads to a higher hurdle rate for R&D (Dixit and Pindyck 1993; Mcdonald 1998; Chirinko and Schaller 2009).”
Real Options Pricing and Organizations: The Contingent Risks of Extended Theoretical Domains (2004, background): “McDonald (2000) found that the use of seemingly arbitrary investment criteria, such as hurdle rates and profitability indexes, proxy for the use of more sophisticated real options calculation.”