This paper suggests that a residual income-type measure of performance can be designed which supports optimal investment and disinvestment decision-making in a real options framework involving the options to wait before investing and to abandon. The measure values investments at the beginning of the year at abandonment value and, at the end of the year, a deprival value approach is adopted. When considering new opportunities the convention is adopted that the initial cost of any new investment is treated as its initial abandonment value. The measure designed has the advantages that: (1) it reduces managerial time horizon problems; and (2) is unambiguous with respect to how to value the investment opportunity, whether held or not, at the beginning or end of the year. Nonetheless, this advantage comes at the cost of increased informational difficulties. © Blackwell Publishers Ltd. 2000.