Optimal Timing for Market Entry
نویسندگان
چکیده
This paper considers the optimal market entry timing of a firm facing price uncertainty and investment irreversibility. When the entry decision is made, the firm has to pay the necessary investment costs and from then onwards will receive the expected future cash-flows. The total expected income of the investment is given by the sum over time of the expected discounted future cash-flows. For the investment to be worthwhile this value must be significantly above, and not just above, the investment cost. Therefore, we address investment decisions where one must decide when it is the best time to make a commitment, losing the option to wait for a better market opportunity. We developed a model that provides us with a rule that specifies under which conditions we should enter the market. In addition, the methodology developed also provides an estimate on how long we should wait before entering the market.
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