Investing in perennial pastures - A real options approach
In investment analysis, uncertainty and irreversibility can undermine net present value(NPV) as a decision rule since the option to delay investment may have value. We applythe real option theory of investment to the pasture investment decision facing livestockproducers in southwestWestern Australia...
| Main Authors: | , |
|---|---|
| Format: | Journal Article |
| Published: |
Wiley
2009
|
| Online Access: | http://hdl.handle.net/20.500.11937/31494 |
| _version_ | 1848753395842678784 |
|---|---|
| author | Tozer, Peter Stokes, J. |
| author_facet | Tozer, Peter Stokes, J. |
| author_sort | Tozer, Peter |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | In investment analysis, uncertainty and irreversibility can undermine net present value(NPV) as a decision rule since the option to delay investment may have value. We applythe real option theory of investment to the pasture investment decision facing livestockproducers in southwestWestern Australia. In 2006, livestock producers thinned their herdsas pasture availability dwindled due to extreme drought conditions. This left producerswith a unique opportunity to either establish new perennial pastures for their cattle orutilize volunteer annual pasture and invest in more sheep breeders. In either case, largeand irreversible investments fraught with multiple sources of uncertainty implies that onecan gain useful insights by casting the investment problem in a real option context. Theresults suggest that required rates of return for each investment alternative are about 1% to 1.5% higher than standard NPV would suggest with sheep production having the lower required rate of return. |
| first_indexed | 2025-11-14T08:23:50Z |
| format | Journal Article |
| id | curtin-20.500.11937-31494 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T08:23:50Z |
| publishDate | 2009 |
| publisher | Wiley |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-314942017-09-13T15:55:04Z Investing in perennial pastures - A real options approach Tozer, Peter Stokes, J. In investment analysis, uncertainty and irreversibility can undermine net present value(NPV) as a decision rule since the option to delay investment may have value. We applythe real option theory of investment to the pasture investment decision facing livestockproducers in southwestWestern Australia. In 2006, livestock producers thinned their herdsas pasture availability dwindled due to extreme drought conditions. This left producerswith a unique opportunity to either establish new perennial pastures for their cattle orutilize volunteer annual pasture and invest in more sheep breeders. In either case, largeand irreversible investments fraught with multiple sources of uncertainty implies that onecan gain useful insights by casting the investment problem in a real option context. Theresults suggest that required rates of return for each investment alternative are about 1% to 1.5% higher than standard NPV would suggest with sheep production having the lower required rate of return. 2009 Journal Article http://hdl.handle.net/20.500.11937/31494 10.1111/j.1467-9353.2008.01427.x Wiley restricted |
| spellingShingle | Tozer, Peter Stokes, J. Investing in perennial pastures - A real options approach |
| title | Investing in perennial pastures - A real options approach |
| title_full | Investing in perennial pastures - A real options approach |
| title_fullStr | Investing in perennial pastures - A real options approach |
| title_full_unstemmed | Investing in perennial pastures - A real options approach |
| title_short | Investing in perennial pastures - A real options approach |
| title_sort | investing in perennial pastures - a real options approach |
| url | http://hdl.handle.net/20.500.11937/31494 |