Capital budgeting investment decisions involve the use of a large portion of a firm’s assets; actually no decision
places a company in more jeopardy than these decisions. Often these investments can cost billions of dollars, and
require predictions of the future, without a suitable return the very existence of the company can be
compromised.
This paper aims to provide a review and analysisoncapital budgeting techniquesfrom 1970 to 2012 in developing
and developed countries regarding the most effective factors on selecting techniques. It also analyzes how
industries proceed to more sophisticated techniques during four decades. The most important flaws of traditional
methods were criticized to analyze whether adopting a new sophisticated method like real option (RO) could
eliminate them. Through an overview on RO domain and its process, the most efficient usageof sophisticated
methodswas found.Reviewing previous empirical studies on real option adoptiongive us insight for providing
required infrastructures before applying real option process. Our main aim by providing this paperis to help
readers makethe most appropriate decision about capital budgeting techniques in terms of different factors with a
great focus on real option (in the case which real option domain would not be contravened)and fault detecting to
remove important obstacles and achieve successful real option implementation.