Universita degli Studi - L'Aquila Facolta di Economia Dip. di Sistemi ed Istituzioni per l'Economia *****

Abstract

In this short pa er, (Kula tila ka , 1988) model of FMS ma na'G ent is reinterpreteda sa rea options dyna mic progra ming (DP) version of tr a itiona l Cost Volume Profit (CVP)a na lysis. Numerica exa ples replica e results reported in cha ter 4exa ple 1.H.a nd cha ter 7 of (Dixit a d Pindyck, 1994). Moreover,a di#erent version of (Kula tila ka , 1988) numerica exa ple is a a yzed. Results include not only the va lue of the flexiblepla nt, decomposed into its ba se va luea nd the va lue of the flexibility options (na melya ba ndonment option, production mode switching option, mothba lling optiona nd wa iting to invest option), buta lso mode bounds (threshold curves)a re derived not only for the beginning time but a lso for the whole life of the project. In conclusion, thispa per shows how much powerful is Kula tila ka 's Genera l Rea l Option Pricing Model (GROPM) in rea ching through simple numerica l methods resultstha t others, e.g. (Dixita nd Pindyck, 1994), get through very di#cult symbolic stocha stic a gebr a JEL classification code:G13, G31. # A previous version of this paper was circulatedun4 r the title Kulatilaka '88 as a CVP Analysis in a Real Options Framework: A Review, GAUSS tm Codes and Numerical Examplesan d it is posted on http://papers.ssrn .com. The author wishes to than k participan ts to AFFI 2001, Namur, E; occon i Corporate Fin an ce Autumn 2001 Meetin g,Milan , Ita; EWGFM Autumn 2001 Haarlem, NL; Giardin o Giusti Semin ars Autumn 2001, Veron a, Ita for helpful commen ts an d suggestion s. The usual disclaimer applies