New Capital Budgeting Theory: As a New Management Information System Tool

Abstract

The purpose of this paper is to review the real options literature, which has provided a promising area of development in the capital budgeting process of the firm, and to emphasize that employing the new theory, as part of the information system, depends heavily on the implementation of computer information systems, as Decisions Support Systems (DSSs). The paper concentrates on two important real options: to wait and to abandon. It is shown that in absence of the real option values in the capital decision making models, the outcome of such models would be misleading and would lead to wrong decisions. The paper furnishes some avenues for further research in capital budgeting employing real option literature