NovaMatic Industries: Investment Timing and Real Options Valuation

Suwan Cheng Long
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Suwan Cheng Long: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique

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Abstract: This case introduces students to real options analysis through a strategic investment decision at NovaMatic Industries. The firm must evaluate whether to invest immediately in a USD150.8 million automated production facility or delay the decision by two years to gain more market clarity, despite potential cost escalation. Students compare the two strategies using traditional NPV analysis, decision tree modeling, the Black-Scholes option pricing framework, and Monte Carlo simulation. The case highlights the limitations of static valuation under uncertainty and demonstrates how the value of flexibility can be quantified. Designed for courses that integrate corporate finance with programming, the case requires students to build Python-based models and translate analytical results into managerial recommendations. Through this process, students gain practical experience in modeling risk, valuing timing options, and interpreting simulation results. The teaching package includes a fully documented solution notebook to support implementation and facilitate in-class discussion. This case is well-suited for master's-level courses in finance, financial engineering, or analytics that emphasize applied problem solving, data-driven decision-making, and communication of investment insights.

Date: 2025
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Published in 2025

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05371147

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