ACC 560 Assignment 2 Johnson Controls Capital Investments

May 5th, 2015
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ACC 560 Assignment 2 Johnson Controls Capital InvestmentsACC 560-Professor -Johnson Controls, Inc. follows a carefully an outlined capital budgeting process. There are many methodologies to supplement the traditional methods for evaluating the capital investments of Johnson Controls, Inc. The three traditional valuation methods, transaction, income, replacement cost, are appropriate for nearly all valuation analyses. However, over the past decade or so we have seen the growth of a new family of valuation methods based on future contingent events. This family of methods includes real options, binomial models, and Monte Carlo simulations. They are all based on decision tree models where the conditional events required for the IP to generate value are modeled explicitly. At the core of each of these methods is a two-step process: first, compute the probability of the favorable event occurring that will make the IP valuable, and second, compute the payoff if the favorable event occurs (usually using one of the traditional three methods described above).The real option method is based on the successful Fischer-Black valuatio

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