Abstract
Financial theories come to life when they are applied to solving real-life problems. In this chapter, a container port expansion project next to a liquefied natural gas (LNG) regasification plant is considered. The project’s marginal NPVs under different scenarios illustrate a classic capital budgeting stance: an open and shut case for rejection. However, failing to expand opens the business to contractual default, and this has strategic consequences. Hence, when the embedded real options are considered, investing in a “marginal” project may be justifiable, because it allows larger gas payoffs to be secured.
Bibliography
Copeland, T., Koller, T., & Murrin, J. (2000). Valuation (3rd ed.). New York: Wiley Finance.
Damodaran, A. (1996). Investment valuation. New York: John Wiley & Sons.
Gordon, M., & Shapiro, E. (1956). Capital equipment analysis: The required rate of profit. Management Science, 3, 102–110.
Hamada, R. (1972). The effect of the firm’s capital structure on the systematic risk of common stocks. The Journal of Finance, 27(2), 435–452.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporate finance and the theory of investment. The American Economic Review, 48(3), 261–297.
Ohlson, J. A. (1990). A synthesis of security valuation theory and the role of dividends, cash flows, and earnings. Contemporary Accounting Research, 6(2), 648–676.
Author information
Authors and Affiliations
Corresponding author
Copyright information
© 2017 The Author(s)
About this chapter
Cite this chapter
Barcelona, R.G. (2017). Strategic Myopia and Certainty. In: Energy Investments. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-59139-5_4
Download citation
DOI: https://doi.org/10.1057/978-1-137-59139-5_4
Published:
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-137-59138-8
Online ISBN: 978-1-137-59139-5
eBook Packages: Business and ManagementBusiness and Management (R0)