1. Earnings before interest and tax (pretax operating earnings) or earnings before interest, tax, depreciation and amortization (pretax operating cash flow).
2. Discounted cash flow valuation.
3. Trigeorgis(op. cit.)makes a powerful point. He analyzes a business scenario in which the investor has five different real options (pp. 227ff)—this is not a large number compared to real world managing. He demonstrates that each additional option adds more value to the base case (some options are much more valuable than others). However, the complexity of the calculations also increases dramatically as multiple interacting compound options are included, and to my mind so does its distance from business reality. Hence, it would be illusionalto conclude that rigorous options analysis is a substitute for managerial skill. The real conclusion is that with options included many projects are demonstrably better than NPV alone tells us.