Loading...
The effects of an uncertain abandonment value on the investment decision
Adkins, Roger Paxson, D.
Adkins, Roger
Paxson, D.
Publication Date
2016
End of Embargo
Supervisor
Rights
© 2016 Taylor & Francis. This is an Author's Original Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 3Feb 2016 available online at http://dx.doi.org/10.1080/1351847X.2015.1113195
Peer-Reviewed
Yes
Open Access status
openAccess
Accepted for publication
22/10/2015
Institution
Department
Awarded
Embargo end date
Collections
Additional title
Abstract
Using a three-factor stochastic real option model framework, this paper examines the effects of abandonment on the investment decision. Abandonment is classified according to whether the opportunity arises for an active operating asset post-investment, or for holding the project opportunity pre-investment. Separate analytical models are developed for the alternative forms of abandonment optionality. Numerical sensitivity analysis shows that the presence of a post-investment abandonment opportunity makes the investment opportunity appear to be more attractive because of the abandonment option value, but not by a considerable amount. Also, in contrast to the standard real option finding, an abandonment value volatility increase produces a project value threshold fall owing to the increase in the abandonment option value.
Version
Accepted manuscript
Citation
Adkins R and Paxson D (2016). The effects of an uncertain abandonment value on the investment decision. The European Journal of Finance. 23(12): 1083-1106.
Link to publisher’s version
Link to published version
Link to Version of Record
Type
Article