Real options analysis has been recommended to identify and quantify opportunities where managerial flexibility can influence worth. However, real options models in the literature have become increasingly sophisticated, and managers have cited their reluctance to use such models due to their level of complexity and lack of transparency. Presented in this thesis is a real options model that can be easily incorporated into the current project selection methodology of a firm; the model uses managerial cash flow estimates to price real options on tangible investment opportunities in a financially consistent manner. Next, to demonstrate the application of real options analysis in practice, five real options models, including the proposed model, are applied to value a medical device project. The models all price the real option differently, due to the differences in their underlying assumptions, but they all yield the same investment conclusion: the medical device project has value.

Real options analysis has been recommended to identify and quantify opportunities where managerial flexibility can influence worth. However, real options models in the literature have become increasingly sophisticated, and managers have cited their reluctance to use such models due to their level of complexity and lack of transparency. Presented in this thesis is a real options model that can be easily incorporated into the current project selection methodology of a firm; the model uses managerial cash flow estimates to price real options on tangible investment opportunities in a financially consistent manner. Next, to demonstrate the application of real options analysis in practice, five real options models, including the proposed model, are applied to value a medical device project. The models all price the real option differently, due to the differences in their underlying assumptions, but they all yield the same investment conclusion: the medical device project has value.