Evaluating Investment Options Under Uncertainty PPT
This PPT slide, part of the 39-slide Creative Thinking in Strategy Development PowerPoint presentation, presents a framework for evaluating investment options under a level 3 uncertainty scenario, specifically focusing on the decision to launch full production versus taking a five-year license for a block of land. It outlines various evaluation criteria and provides a qualitative assessment of these options.
The left side details specific evaluation criteria such as stock price, exercise price, full commitment cost, uncertainty, option duration, dividends, risk-free interest rate, and purchase option cost. Each criterion is quantified with examples relevant to the oil and gas industry, illustrating the financial implications of the investment decision. For instance, the stock price reflects expected cash flows, while the exercise price indicates necessary sunk costs.
On the right side, the qualitative assessment contrasts the full commitment option with the alternative option. It highlights key differences in the level of uncertainty regarding expected cash flows, duration of the option without competitive threats, and direct opportunity costs. The full commitment option is characterized by low uncertainty, a short duration, and high associated costs, while the alternative option presents high uncertainty, a longer duration, and lower costs.
This analysis provides critical insights for decision-makers. It emphasizes the trade-offs between immediate investment and maintaining flexibility in uncertain environments. The framework encourages executives to weigh the risks and costs associated with each option, ultimately guiding them toward a more informed investment strategy. Understanding these dynamics is essential for navigating complex investment landscapes and making strategic choices that align with organizational goals.
This slide is part of the Creative Thinking in Strategy Development PowerPoint presentation.
This presentation is created by former McKinsey, BCG, Deloitte, EY, and Capgemini consultants. It teaches a practical consulting framework actively used by tier-1 consulting firms.
EXPLORE MORE SLIDES FROM THIS PRESENTATION
EXPLORE MORE PRESENTATIONS ON
Strategy Development Strategic Thinking Creativity Creative Thinking Production
Flevy is the world's largest knowledge base of best practices.
Leverage the Experience of Experts.
Find documents of the same caliber as those used by top-tier consulting firms, like McKinsey, BCG, Bain, Deloitte, Accenture.
Download Immediately and Use.
Our PowerPoint presentations, Excel workbooks, and Word documents are completely customizable, including rebrandable.
Save Time, Effort, and Money.
Save yourself and your employees countless hours. Use that time to work on more value-added and fulfilling activities.
