Real Options Value: An Application to Investment of Nuclear Power Plants

Abstract

We study the investment of the rm under uncertainties of both cash ows and tax law. The uncertainty of tax law which is considered in this paper is the switching between the dierent depreciation methods. We analyze the eect of new depreciation method, which has been introduced in Japan's nuclear policy, on the investment decision of nuclear power plants. It is shown that how regal durable years and construction times of nuclear power plants aect the investment threshold.