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Using a Real-Options Analysis Tutorial in Teaching Undergraduate Students

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Conference

2016 ASEE Annual Conference & Exposition

Location

New Orleans, Louisiana

Publication Date

June 26, 2016

Start Date

June 26, 2016

End Date

June 29, 2016

ISBN

978-0-692-68565-5

ISSN

2153-5965

Conference Session

Using a Real-Options Analysis Tutorial in Teaching Undergraduate Students

Tagged Division

Engineering Economy

Page Count

60

DOI

10.18260/p.27125

Permanent URL

https://peer.asee.org/27125

Download Count

4699

Paper Authors

biography

John A. White Jr. University of Arkansas

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John A. White, Distinguished Professor of Industrial Engineering and Chancellor Emeritus, received his BSIE degree from the University of Arkansas, his MSIE degree from Virginia Tech, and his PhD from The Ohio State University. He is the recipient of honorary doctorates from Katholieke Universitiet of Leuven in Belgium and George Washington University.

Since beginning his teaching career as a tenure-track instructor at Virginia Tech in 1963, he has taught more than 4,000 engineering students at Arkansas, Georgia Tech, Ohio State and Virginia Tech. For a 3-year period he was Assistant Director for Engineering at the National Science Foundation. While on the Georgia Tech faculty, he served as dean of engineering for 6 years; while on the Arkansas faculty, he served as chancellor for 11 years.

A member of the National Academy of Engineering and a Fellow of ASEE, White has received a number of national awards, including ASEE's National Engineering Economy Teaching Excellence Award and John L. Imhoff Global Excellence Award. White is a co-author of six books, including three engineering economy texts. His corporate board memberships have included CAPS Logistics, Eastman Chemical Company, JB Hunt Transport Services, Logility, Motorola, and Russell.

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Abstract

An undergraduate tutorial on real-options analysis used in teaching an advanced engineering economy course is presented. The tutorial includes the binomial option pricing model and the Black-Scholes model. Reasons for using real-options analysis are included, as well as examples of calculations of the values of financial options and real options for a variety of investment scenarios. Implications of real-options analysis on the way engineering economy is taught are also treated. Specifically, the need to incorporate multiple discount rates and continuous compounding and terminal value in economic justifications is addressed. Lessons learned from using the tutorial twice with a class are shared.

White, J. A. (2016, June), Using a Real-Options Analysis Tutorial in Teaching Undergraduate Students Paper presented at 2016 ASEE Annual Conference & Exposition, New Orleans, Louisiana. 10.18260/p.27125

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