CAPITAL BUDGET EVALUATION OF EXCESS CAPACITY

This paper addresses the fundamental issue of capacity optimization in capital budgeting projects, which is not viable by means of conventional financial analysis. We argue that this is a particular real-option based situation of a kind that encourages the use of statistical simulation. A case study shows the technique to be highly comprehensive, flexible, as well as efficient, which merits its use as a hands-on heuristic tool for corporate management.