An Intuitive Model for Valuing Deferral Options

This paper introduces an opportunity cost model for valuing deferral options in investment projects. Instead of using complex financial mathematics, the model breaks down value into four components: interest earned, opportunity gain, present value, and investment cost. It offers a simpler, transparent alternative to the traditional binomial lattice method for real options valuation. Managers can better understand flexibility and make strategic decisions without needing deep financial expertise. The model also discusses when to apply real versus risk-neutral probabilities​.