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Become who you are. Make what only you can make.Friedrich Nietzsche

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Strategic Investment

Strategic Investment

This book provides a complete framework for analyzing and valuing strategic investments.

Author(s): Han T.J. Smit, Lenos Trigeorgis

Publisher: Princeton University Press

Date of publication: 2004

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This book is designed to offer a more complete framework for analyzing strategic investments than the traditional Net Present Value method, in order to take account of the flexibility available to companies to adapt projects as they unfold, as well as the impact of the competitive playing field. The wealth of information and the variety of detailed case studies and illustrations make it particularly interesting.
However, be warned that the long, technical explanations do not make for easy reading, given that this work appears to be aimed principally at academics and specialized practitioners of the covered topics. Other readers would probably be better off consulting the most understandable portions, by referring to the suggestions below.
– To go rapidly to the main ideas of the book, refer to the introduction and chapter 10, which are fairly easy to grasp. Chapter 1 covers the same ideas more thoroughly, using examples such as Digital and the emergence of the DVD standard.
– Although deferring a decision can reduce the risk of error, making rapid choices can often give a company a edge on the competition. This book revolves around this dilemma, which is specifically addressed in chapter 2, as well as through fairly complex examples in chapter 6.
– The two main valuation tools recommended by the authors are real option theory and game theory, which are explained in detail respectively in chapters 3 and 4. Chapter 8 offers a set of illustrative applications for real options, among which readers are advised to start with the Merck and Hewlett-Packard examples.
– The authors’ ultimate objective is to encourage companies to combine real options and game theory in valuing their investment projects. Chapter 5 is entirely devoted to this, and as such, is one of the key sections of the book. Chapters 7 and 9 offer many examples of these assessment methods in action, but are aimed only at those who aren’t turned off by a flood of mathematical formulas.