Finance Project

Real Options in Financial Analysis Author’s Name Institutional Affiliation Course Code and Name Professor’s Name Date Real Options in Financial Analysis Definition and Significance of Real Options in Financial Analysis A natural option is a valuable economic right that a company can abandon or decide to make a choice. Natural options are often available, and a situation often presented to a business or company manager, mainly in situations that involve investment opportunities or concerning a project in the company is weighing benefits and challenges to investing in (Fitzgerald, 2022). The option is natural, involving tangible assets such as inventory, buildings, land, and machinery instead of financial resources and instruments. They are not exchangeable as securities since they involve physical and underlying assets. Such options include the company’s management’s choices to expand, curtail, or change a project or investment option based on ever-changing market conditions and technological and economic environment (Tallon et al., 2020). By using natural options, managers can understand the value of potential investments and account for the benefits of such activities. Natural Options for Dell Company The data provided explicitly show several real options that Dell Technologies Company can make. First, the investment timing real option is a choice Dell Technologies Inc. can make based on its significant market capitalization of $33,089.3 million. This gives Dell Technologies a solid financial foundation that can be leveraged to invest in new technology or projects (Olaio, 2023). For instance, they can opt to increase investment in developing technology in the market trend as a response to new market trends or postpone these projects depending on the circumstances the company is facing (Fitzgerald, 2022). The second real option Dell Technologies can make is abandonment. Since the company has a capital structure consisting of short-term...