ABSTRACT
For many companies, the value of growth opportunities is greater than the value of assets-in-place. This is particularly true for startup and emerging firms, although it may not be so important for well-established firms. This chapter investigates five essential components. First, the theoretical model is developed. Second, qualitative comparative analysis is carried out to determine the direction of change of the explanatory variables with respect to the exogenous variable. Third, a scenario analysis is conducted to examine the impact of each of the variables identified in the model on the value of growth opportunities. Fourth, a binomial option pricing approach is applied to explore the financing options of a growth project. Finally, real data on a sample of firms is analyzed to test the model and identify any deviations from the theoretical and scenario analysis results, and compare with earlier findings in existing finance literature.
