 While analyzing the riskiness of a project, some market-based measures can also be considered by the financial analyst. And here we have certain market-based methods that can be used to determine the project riskiness in the process of capital budgeting. We know that the cash flows of a project are discounted at a required rate of return that is required by a diversified project owner and these required rate of returns when used as a discount factor are termed as risk adjusted discount rates. These in fact include a risk premium to be given to the diversified project owner for taking a risk inherent in the market. To determine project riskiness using the market-based methods, we have two commonly known methods that is CAPEM which is known as capital asset pricing model and APT which is known as arbitrage pricing theory. Total risk of a project can be classified into two components under the CAPEM theory that is the systematic risk and unsystematic or idiosyncratic risk. Systematic risk is that portion of the total risk which is due to the system that is inherent in the market and this risk cannot be diversified, it is rather undiversifiable. So far as the unsystematic risk or idiosyncratic risk is concerned it is related to the project specifications only or it is a project specific risk. It can be diversified, diversified customer in the market can demand risk premium against the unsystematic risk and cannot demand risk premium against the systematic risk. For a diversified firm we know that total risk measured by the dispersion in term in the NPV and IRR of the project if we do this that is irrelevant and inappropriate. For a diversified customer we need to divide the total risk of the project into systematic and unsystematic risk and then to deal the unsystematic risk on the basis of market factors. For that purpose we have a market based risk major model and that is the CAPEM capital asset pricing model through CAPEM we determine a project beta and that beta is generally used as a major of project riskiness that is a major of systematic risk which is exposed to the project's NPV or the IRR. For that purpose we have a model in terms of SMLR security market line. Security market line is a model that develops a relationship between the project's required rate of return and the project's beta. This project entails the project required rate of return as a function of the project's beta. Mathematically we have an equation for determining the SML and the equation is rj is equal to rf plus b into expected rate of market minus the risk-free return. Now rf stands for risk-free rate of return and rm stands for market return. The difference between market return and risk-free rate is the risk-premium. When multiplied by this risk-premium with the risk factor that is beta the term is termed as the market risk-premium. This is the risk-premium that a diversified customer demands against taking a risk. What is the use of SML? In fact SML used to determine required of return which in turn is used to compute the NPV and IRR of the project. Now projects with positive NPV are accepted and projects with IRR greater than the required rate of return are also accepted. For those projects whose risk is greater than the company's on-risk for such projects their on-biters are useful to determine the project's NPV than the use of companies on-vac. What is real options? These real options are similar to financial options with the difference that these real options deal in real assets means for project analysis we can also have certain options. In fact these options allow managers to postpone some decisions at present in order to take future decisions who are subject to some future information or future event that may occur with respect to the company or to the project under review. These future decisions depend upon present and future information and future other events. These options are very realistic capital budgeting techniques. We have certain types of options that is timing options, sizing options and others. In timing options the company have an option to postpone the project if in the days to come cash flows are not favourable and if the cash flows are favouring the company in terms of positive NPV then the project may be resumed. With respect to the seizing options we have two options for the project. The first is Abundant option and the second is the Growth option. If after investing some amount in the project the management says that in the days to come the cash flows are not favourable for the company the management may abandon the work on the project and in respect of growth options the firm can make additional investments in case of strong financial results in the days to come means that if the firm is facing with growth opportunities in future period of time the company can make some additional investment in the project. We have another option that is the flexibility options. In flexibility options the first option is the price setting option if the company sees that the demand is in excess of the company's production capacity to reap the benefit of higher demand the company temporarily can increase its sale price instead of increasing the production of the company on the project under review and in the same flexibility options we have production flexibility in order to meet the current market demands the production hours can be increased from working overtime to adding additional investment or other resources in the project. Then we have fundamental options these are the options that a company can have in terms of internal and external factor that are other than the other options. How to value these options available with the company during the process of capital budgeting. The first evaluation approach is discounted cash flow analysis without considering options. This means that if discounted cash flow method reveals a positive NPV for the project the company may not go for option analysis and may not evaluate the options available to the project simply discounted cash flows are enough to accept the project. Second approach is the project NPV if the project has a negative NPV then the company can see analyze the financial worth of the available options if the value of the available options is greater than the cost of exercising these options the net value can be analyzed while adding to the negative NPV of the project if the resulting figure is positive the company may go for the project. Then we have another valuation approach for valuing the options and that is the decision making trees although they are not conceptually sound like other decision making techniques but they are good enough to analyze the sequential process during the capital budgeting process. Option pricing models there are certain mathematical models that can be used in order to determine financial worth of the available real options with the company but exercising these models need a highly sophisticated and skilled professionals so that the prices of these options can be determined in order to judge the financial worth of the capital project.