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A foreign investment project of an autoparts firm: Real options versus financial valuation

Author

Listed:
  • María Luisa Saavedra García

    (Facultad de Contaduría y Administración de la Universidad Nacional Autónoma de México. Circuito exterior s/n, Ciudad Universitaria, Del. Coyoacán, C.P. 04510, México D.F., México.)

  • Máximo Jorge Saavedra García

    (Universidad de la Sierra Sur de Oaxaca. Calle Guillermo Rojas Mijangos S/N, Esq. Av. Universidad Col. Ciudad Universitaria, Miahuatlán de Porfirio Díaz, Oaxaca, México C.P. 70800.)

  • Deyanira Bernal Domínguez

    (Universidad Autónoma de Sinaloa. Ángel Flores y Riva Palacio s/n, Culiacán, Sinaloa, México C.P.)

Abstract

This study examines the importance of using real options model in the auto industry by means of its application to the case of a direct investment abroad, specifically in Brazil. We use the Black and Scholes and Binomial models. Empirical results show that this is the kind of project that, despite having a negative NPV, should be accepted because of its strategic value, which indicates that the contingent effect of the investment projects, reflected in the volatility of cash flows, are best assessed by the real options model unlike the VPN that does not take them into account.

Suggested Citation

  • María Luisa Saavedra García & Máximo Jorge Saavedra García & Deyanira Bernal Domínguez, 2013. "A foreign investment project of an autoparts firm: Real options versus financial valuation," Economía, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, vol. 38(35), pages 127-156, January-J.
    • Handle: RePEc:ula:econom:v:38:y:2013:i:35:p:127-156
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Real options; Black and Scholes; net present value; binomial model.;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • G3 - Financial Economics - - Corporate Finance and Governance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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