PART I: INTRO
Project
appraisals include a range of techniques used to value projects. They help
managers to make a good final decision in choosing the best project(s) (dependent
on mutual projects or independent projects) based on the available or estimated
financial data. For the financial assets, Net Present value (NPV) is considered
as the best technique among others such as; Cash back period, Average Rate of
Return and Internal Rate of Return. It has been proven that NPV gives an
adequate formulation satisfying all the four investment rules (Copeland et al,
2005). Nevertheless, there appear some difficulties in using the traditional
technique – the NPV in valuing the real assets, for example; “land, buildings,
plant, and equipment” (Hull, 2012, p.765). These real assets normally go
alongside with the options to expand, extend, abandon… on the projects. The NPV
technique could not properly evaluate those options with an appropriate
discount rate (Hull, 2012). In recent years, Real Options has become the
standard method. This approach is believed to overcome the problems that the
traditional technique cannot solve. In the time being, this paper will attempt
to present the concepts behind the real options. Then, by applying the real
options application in the nuclear power development project in Vietnam, this
essay also takes a look in how important the real options is in evaluating the
investment opportunities and making decision.
