True or false?

a. Real-options analysis sometimes tells firms to make negative-NPV investments to secure future growth opportunities.

b. Using the Black–Scholes formula to value options to invest is dangerous when the investment project would generate significant immediate cash flows.

c. Binomial trees can be used to evaluate options to acquire or abandon an asset. It’s OK to use risk-neutral probabilities in the trees even when the asset beta is 1.0 or higher.

d. It’s OK to use the Black–Scholes formula or binomial trees to value real options, even though the options are not traded.

e. A real-options valuation will sometimes reveal that it’s better to invest in a single large plant than a series of smaller plants.

AppendixLO1