Publication Cover
The Engineering Economist
A Journal Devoted to the Problems of Capital Investment
Volume 68, 2023 - Issue 4
129
Views
0
CrossRef citations to date
0
Altmetric
Research Articles

Introducing a real option framework for EVA/MVA analysis

ORCID Icon, , &

References

  • Al Shishany, A., Al-Omush, A., & Guermat, C. (2020). The impact of economic value added (EVA) adoption on stock performance. Accounting, 6, 687–704. https://doi.org/10.5267/j.ac.2020.6.015
  • Arnold, T. (2014). A pragmatic guide to real options. Palgrave MacMillan.
  • Arnold, T., & Crack, T. F. (2004). Using WACC to value real options. Financial Analysts Journal, 60(6), 78–82. https://doi.org/10.2469/faj.v60.n6.1909
  • Arnold, T., Crack, T. F., & Schwartz, A. (2022). Embedding an NPV analysis into a binomial tree with a real options application. Managerial and Decision Economics, 43(7), 2924–2934. https://doi.org/10.1002/mde.3572
  • Barcelona, R. (2015). Renewable energy with volatile prices: Why NPV fails to tell the whole story. Journal of Applied Corporate Finance, 27, 101–109.
  • Barton, K., & Lawryshyn, Y. (2011). Integrating real options with managerial cash flow estimates. The Engineering Economist, 56(3), 254–273. https://doi.org/10.1080/0013791X.2011.601403
  • Behera, S. (2020). Does the EVA valuation model explain the market value of equity better under changing required return than constant required return? Financial Innovation, 6(1), 1–23. https://doi.org/10.1186/s40854-019-0167-8
  • Bernardo, A. E., Chowdhry, B., & Goyal, A. (2012). Assessing project risk. Journal of Applied Corporate Finance, 24(3), 94–100. https://doi.org/10.1111/j.1745-6622.2012.00393.x
  • Burchman, S. (2019, August 28). Economic value added makes a come back. Harvard Law School Forum on Corporate Governance.
  • Carmichael, D. G., Hersh, A. M., & Parasu, P. (2011). Real options estimate using probabilistic present worth analysis. The Engineering Economist, 56(4), 295–320.
  • Cobb, B., & Charnes, J. (2004). Real options volatility estimation with correlated inputs. The Engineering Economist, 49(2), 119–137. https://doi.org/10.1080/00137910490453392
  • Cottrell, T., & Sick, G. (2002). Real options and follower strategies: The loss of real option value to first-mover advantage. The Engineering Economist, 47(3), 232–263. https://doi.org/10.1080/00137910208965035
  • Cox, J., Ross, S., & Rubinstein, M. (1979). Option pricing: A simplified approach. Journal of Financial Economics, 7(3), 229–263. https://doi.org/10.1016/0304-405X(79)90015-1
  • Decaire, P., Gilje, E., & Taillard, J. (2020). Real option exercise: Empirical evidence. The Review of Financial Studies, 33(7), 3250–3306. https://doi.org/10.1093/rfs/hhz092
  • Dobrowolski, Z., Drozdowski, G., Panait, M., & Babczuk, A. (2022). Can the economic value added be used as the universal financial metric? Sustainability, 14(5), 2967. https://doi.org/10.3390/su14052967
  • Fatemi, A., Desai, A., & Katz, J. (2003). Wealth creation and managerial pay: MVA and EVA as determinants of executive compensation. Global Finance Journal, 14(2), 159–179. https://doi.org/10.1016/S1044-0283(03)00010-3
  • Feinstein, S. P., & Lander, D. M. (2002). A better understanding of why NPV undervalues managerial flexibility. The Engineering Economist, 47(4), 418–435. https://doi.org/10.1080/00137910208965043
  • Gakpo, M. D. Y., Agyei, C., & Asante, V. G. (2021). Analysis of shareholder value using economic value added and conventional accounting measures: Evidence from Ghana. Global Journal of Finance and Management, 13(1), 1–13.
  • Hall, J. (2013). Toward improved use of value creation measures in financial decision-making. Journal of Applied Business Research (JABR), 29(4), 1175–1187. https://doi.org/10.19030/jabr.v29i4.7924
  • Han, H. J., & Park, C. S. (2008). A study on estimating investment timing of real options. The Engineering Economist, 53(3), 197–229. https://doi.org/10.1080/00137910802262895
  • Hartman, J. (2000). Technical note: On the equivalence of net present value and market value added as measures of a project’s economic worth. The Engineering Economist, 45(2), 158–165. https://doi.org/10.1080/00137910008967543
  • Herath, H. S. B., & Park, C. S. (2001). Real options valuation and its relationship to Bayesian decision-making methods. The Engineering Economist, 46(1), 1–32. https://doi.org/10.1080/00137910108967560
  • Herath, H. S. B., & Park, C. S. (2002). Multi-stage capital investment opportunities as compound real options. The Engineering Economist, 47(1), 1–27. https://doi.org/10.1080/00137910208965021
  • Kanniainen, J. (2009). On the effects of uncertainty on investment timing and option value. The Engineering Economist, 54(3), 175–196. https://doi.org/10.1080/00137910903108278
  • Kim, K.-T., An, D., & Lee, D.-J. (2021). Economic service life of equipment under uncertain revenues: A real options approach. The Engineering Economist, 66(3), 245–261. https://doi.org/10.1080/0013791X.2021.1946226
  • Lewis, N. A., Eschenbach, T. G., & Hartman, J. C. (2008). Can we capture the value of option volatility? The Engineering Economist, 53(3), 230–258. https://doi.org/10.1080/00137910802263166
  • Lynch, J., & Shockley, R. (2016). Valuation of a developmental drug as a real option. Journal of Applied Corporate Finance, 28(3), 118–126. https://doi.org/10.1111/jacf.12198
  • Lynch, J., & Shockley, R. (2017). Valuation of a pharmaceutical licensing contract. Journal of Applied Corporate Finance, 29(3), 80–88. https://doi.org/10.1111/jacf.12252
  • Miller, L., & Park, C. (2002). Decision making under uncertainty – real options to the rescue? The Engineering Economist, 47(2), 105–150. https://doi.org/10.1080/00137910208965029
  • Miller, T. (2011). Active management of real options. The Engineering Economist, 56(3), 205–230. https://doi.org/10.1080/0013791X.2011.599478
  • Min, K. J., & Jackman, J. (2022). Real option-based decision model for fuel saving devices in transportation vehicles under flexible design. The Engineering Economist, 67(1), 2–24. https://doi.org/10.1080/0013791X.2021.2017094
  • O’Byrne, S. (2016). A better way to measure operating performance (or why the EVA math really matters). Journal of Applied Corporate Finance, 28, 68–86.
  • O’Hanlon, J., & Peasnell, K. (1998). Wall Street’s contribution to management accounting: The Stern Stewart EVA financial management system. Management Accounting Research, 9(4), 421–444. https://doi.org/10.1006/mare.1998.0089
  • Park, C. S., & Herath, H. S. (2000). Exploiting uncertainty – investment opportunities as real options: A new way of thinking in engineering economics. The Engineering Economist, 45(1), 1–36. https://doi.org/10.1080/00137910008967534
  • Rhys, H., Song, J., & Jindrichovska, I. (2002). The timing of real option exercise: Some recent developments. The Engineering Economist, 47(4), 436–450. https://doi.org/10.1080/00137910208965044
  • Sharma, A. K., & Kumar, S. (2010). Economic value added (EVA) – literature review and relevant issues. International Journal of Economics and Finance, 2(2), 200–220. https://doi.org/10.5539/ijef.v2n2p200
  • Shrieves, R., & Wachowicz, J. (2001). Free cash flow (FCF), economic value added (EVA), and net present value (NPV): A reconciliation of variations of discounted-cash-flow (DCF) valuation. The Engineering Economist, 46(1), 33–52. https://doi.org/10.1080/00137910108967561
  • Stern, E. (2011). China adopts EVA: An essential step in the great leap forward. Journal of Applied Corporate Finance, 23(1), 57–62. https://doi.org/10.1111/j.1745-6622.2011.00314.x
  • Stern, J. M., & Willett, J. T. (2014). A look back at the beginnings of EVA and value-based management. Journal of Applied Corporate Finance, 26(1), 39–46. https://doi.org/10.1111/jacf.12052
  • Subedi, M., & Farazmand, A. (2020). Economic value added (EVA) for performance evaluation of public organizations. Public Organization Review, 20(4), 613–630. https://doi.org/10.1007/s11115-020-00493-2
  • Tholana, T., & Neingo, P. N. (2019). Economic value added analysis for mining companies. In E. Widzyk-Capehart, A. Hekmat, & R. Singhal (Eds.), Proceedings of the 27th International Symposium on Mine Planning and Equipment Selection – MPES 2018. Springer.
  • Trigeorgis, L. (2005). Making use of real options simple: An overview and applications in flexible/modular decision making. The Engineering Economist, 50(1), 25–53. https://doi.org/10.1080/00137910590917026

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.