Manager's Tool Kit Here's a way to apply option pricing to strategic decisions without hiring an army of Ph.D. 's. The analogy between financial options and corporate investments that create future opportunities is both intuitively appealing and increasingly well accepted. Executives readily see that today's investment in R&D, or in a new marketing program, or even in a multi-phased capital expenditure can generate the possibility of new products or markets tomorrow. But for many, the leap from the puts and calls of financial options to actual investment decisions has been difficult and deeply frustrating. The calculations required to value real options have been dauntingly complex, and practical how-to advice on the subject has been scarce and mostly aimed at specialists, preferably with Ph.D.'s in finance. The framework presented here bridges the gap between the practicalities of real-world capital projects and the higher mathematics associated with formal option-pricing theory. Timothy Luehrman's step-by-step approach can be mastered by anyone who knows how to work with basic discounted cash flows. It is based on a simple mapping between the characteristics of a capital project and the five variables that determine the value of a simple call option on a share of stock. Luehrman's methodology is designed to be used by general managers, not technical specialists. It deliberately sacrifices absolute precision in order to generate a number "good enough" to provide executive