ABSTRACT
This chapter conducts comparative static analysis to determine how an infinitesimal change in one variable affects the other. In particular, it examines the effect of each relevant parameter on the value of Gx and differentiates Equation partially with respect to a given parameter. Throughout, Gx is taken to represent the value of growth opportunities or the market value of firm H. The chapter determines the direction of the relationships between variables as implied by the theoretical model developed. It puts the model to the test and evaluate its performance when subjected to real world data. The chapter explores the relationships between the key parameters in the real option valuation model. Research and development (R&D) investments by the firm contribute positively to its value of growth opportunities, whereas R&D of the rivals have a negative impact. The longer it takes to exercise the real call option as well as increasing magnitudes of the strike price erode the value of the option.
