THE REAL OPTIONS APPROACH TO CAPITAL INVESTMENT PROJECTS

One of the main areas of corporate finance, which is a "sub -branch" of modern financial science, is the investment analysis, which consists in assessing the attractiveness of the projectfor the investor. Over the decades ofthe existence ofthis branch ofscience, many methods and assessment methods have been developed, each ofwhich has certain advantages and disadvantages. The most common is the Net Present Value (NPV) method. A positive NPV indicates that investing in a project makes sense. However, this method has certain drawbacks, the main ofwhich is that it does not take into account the possibility ofnon-linear development of events during the implementation of the project, as well as theflexibility that managers have in making decisions. This drawback can be eliminated by using the real options method, which allows taking into account the flexibility that managers have in making decisions, which is especially important when there is a high level of uncertainty at a particular stage of the project. Due to the fact that managerial flexibility always has a positive cost, the real options method avoids underestimatingprojects, which is often allowed when using the NPV approach. This is especially important in cases where the NPV of the project is close to zero.