Strategy and real options case study Suppose you have been appointed as a financial analyst in the Arab Holding Company, which is an industrial company in the western region. The CEO of the company has recently returned from an executive conference for industrial companies in Boston, USA. One of the conference sessions he attended was entitled Strategy as a Portfolio of Real Options. Real options for making strategic investment decisions, and since the company's employees are not aware of real options, the CEO of the company asked you to prepare a brief report on the applications of real options and present it to the company's executives. Required: 1. Preparing the required report explaining the importance and types of real options for making strategic investment decisions, and the possible procedures for analyzing these options in light of the title of the session attended by the CEO of the company after reviewing the appropriate sources on the network. International information, especially the Harvard Business Review article: Luehrman, T. A. 1998. Strategy as a portfolio of real options. Harvard Business Review (September-October): 89-99 2. Using financial modeling in Excel to assist the company in analyzing real options according to the following procedures, to evaluate an investment project at a cost of $10 million, with a default life of 3 years, where there is a probability of 30 for good market conditions, in which case the project will achieve a cash flow of $9 million dollars at the end of each of the three years and there is a probability of 40 for medium market conditions, in which case the project will achieve an annual cash flow of $4 million, and there is a probability of 30% for bad market conditions, in which case the project will achieve an annual cash flow of $2 million , the cost of capital for the project, 12, and the risk-free rate of return 6%. Scenario analysis and finding the project's expected net present value, and the coefficient of variation for the net present value. . Assuming that the company can discontinue the project at the end of the first year by selling it for $6 million, use the decision tree analysis method to estimate the value of the project under the discontinuation option, estimate the value of the option using the Black-Scholes model and value the project using the strategic net present value.

. Assuming that the project cannot be closed, however, the experience gained by the company will lead to an opportunity at the end of the third year to undertake a new project that will have the same cost as the original project, and the cash flows of the new project will follow any branch that resulted from the original project, in other words, there will be An investment cost of $10 million at the end of year three is known with certainty), followed by operating cash flows of either $9 million, $4 million, or $2 million. For the subsequent three years, use the decision tree analysis method to estimate the value of the project under the growth option, and estimate Option value using the Black-Scholes model and project valuation using the strategic net present value method. Assuming the original project (no stop option or growth option) can be deferred for a year, . The cash flows are unchanged, but the information obtained during that year will tell the company exactly which market demand conditions will occur. The strategic net present value approach.