The economic feasibility study on development of coal mine using real options

Abstract

This study re-evaluate a Korean bituminous coal mining project in Real Option Method(ROM) and compare ROM with Discounted Cash Flow Method(DCFM) to present that ROM has advantage over the application of a DCFM under uncertainty of business environment. This study concludes that the value of ROM is higher than the value of DCFM as much as the value of option to expand because ROM gives better information to determine when the investor has the option to expand the investment.