Money matters

An important insight is that if you own a real option, variance helps you: If the price had been $28.09/MWh constant, you would have earned $10.8 million and you would never have shut down or reopened the plant. But because the price was highly variable around $28.09/MWh, you would have earned $28.6 million. It is [...]

Business risk is the uncertainty of income flows caused by the nature of a firm’s business. The less certain the income flows of the firm, the less certain the income flows to the investor. Therefore, the investor will demand a risk premium that is based on the uncertainty caused by the basic business of the [...]