The real options theory suggests that firm value should include the value of real options, i.e., a firm has the option to expand a more profitable business and the option to liquidate assets of a less profitable business. For a diversified firm, each segment has similar options. Applying the...

Theory suggests that firm value should include the value of real options; that is, firms have the option to expand more profitable businesses and liquidate less profitable businesses. In a diversified firm, each segment has its own real options. Applying real options theory to a diversified firm...