Module BUSI3391: Strategic Investment Decisions, Options, and Valuation Under Uncertainty

Department: Management and Marketing

BUSI3391: Strategic Investment Decisions, Options, and Valuation Under Uncertainty

Prerequisites

• None.

Corequisites

• None.

Excluded Combination of Modules

• None.

Aims

• To provide a critical understanding of making flexible strategic investment decisions, evaluating options and growth companies (including start-ups) in uncertain business conditions utilizing concepts from finance, management, strategy, innovation/entrepreneurship and real options theory.
• To apply contemporary valuation and decision concepts and tools to strategic investment projects and problems with embedded real options (managerial flexibility), as well as valuing growth companies, intangibles (e.g., patents, brand) and competitive strategies under uncertain business conditions.
• To enable students to think critically, flexibly and strategically about the design of strategic investments, and the factors influencing business development under uncertain conditions and competition.
• To apply advanced tools for growth company and business option modelling, such as binomial trees in excel, simulation and specialized software.

Content

• Making flexible decisions under uncertain business conditions
• Valuing investments and firms using Discounted Cash Flow/ Net Present Value
• The value of real options: examples and valuation principles
• Valuing complex projects with options using binomial trees in Excel
• Problem structuring and option modelling using specialised software
• Using analytic models to value options to acquire (call) and switch resources
• Resource redeployment and MNC’s option network of multinational operations
• Valuing options using simulation and binomial trees with two correlated assets
• Valuing start-ups/growth companies and intangibles (e.g., patents, brand)
• Competition and strategy: use of options and game theory
• Entrepreneurial strategy: innovator to compete or cooperate with incumbent

Learning Outcomes

• Understand the key concepts, valuation principles and modern tools for making optimal strategic investment decisions and valuing growth companies and intangibles under business uncertainty and competition.
• the different role and impact of uncertainty and change on optional (compared to committed) business decisions and learn how to structure business decisions to contain risk and take fuller advantage of upside possibilities, turning uncertainty into an opportunity rather than business enemy.
• Have a critical appreciation and understanding of the complexities, challenges and role of demand and technological uncertainties in decision making and how to structure and evaluate complex business investment decisions under uncertainty.
• Have a deep and practical understanding of the role and application of contemporary specialized techniques for investment project and growth company valuation under demand, technological and competitive uncertainty.
• Apply business option modelling methods and tools, such as binomial trees in Excel, Monte Carlo simulation and specialized option valuation software.
• Evaluate complex investment project and company situations and appreciate the scope and process of making sequential decisions under uncertainty.
• Develop problem structuring and business option modelling skills, i.e., perform what-if-analysis and make recommendations with certain confidence.

• Apply relevant conceptual frameworks and analytical tools to assess uncertain business situations, strategic options and competitive strategies.
• Apply analytical problem-solving skills to business situations and problems from finance, management, strategy and innovation in an uncertain business context.
• Contribute to the teamwork and efficient management of project teams via the analysis and oral presentation of real project and company cases.

• Effective written and oral communication skills.
• Planning, organising and time management.
• Problem solving and analytical skills, particularly involving analysis of complex business situations under uncertainty.
• Using initiative, teamwork and interpersonal skills; selecting, analysing, synthesizing and interpreting data and using them as inputs for rational decision making.

Modes of Teaching, Learning and Assessment and how these contribute to the learning outcomes of the module

• Learning outcomes will be met using workshop-based delivery, involving a combination of lectures, problem solving exercises, groupwork, case studies (or analysis of new start-up businesses) and discussions, aimed to provide opportunities for experiential learning, supported by guided reading and business option modelling software.
• The summative assessment comprises a comprehensive final exam focused on problem solving with a 50% weighting.
• The summative assessment also includes a project-based group oral presentation with a 50% weighting.
• The summative assessment will test students' understanding of key concepts and tools and their ability to critically apply those and interpret what they have learned within the business context e.g., by conducting an in-depth analysis of a company case study (or a real start-up firm).

Teaching Methods and Learning Hours

Summative Assessment

Formative Assessment:

In-class problem-solving (quantitative) exercises during the workshops and specialised software applications developing skills needed to undertake the summative assignments.

■ Attendance at all activities marked with this symbol will be monitored. Students who fail to attend these activities, or to complete the summative or formative assessment specified above, will be subject to the procedures defined in the University's General Regulation V, and may be required to leave the University