Exam 13: Real Options and Other Topics in Capital Budgeting

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Traditional discounted cash flow (DCF)analysis--where a project's cash flows are estimated and then discounted to obtain an expected NPV--has been the cornerstone of capital budgeting since the 1950s.However,in recent years,it has been demonstrated that DCF techniques do not always lead to proper capital budgeting decisions due to the existence of real options.

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