ease write down your choice in the blank before the question. Two points each and 10 points in total. Which of the following statements regarding capital budgeting is NOT CORRECT? a. The conventional NPV method is good enough for capital budgeting because it fully recognizes the value created by a project. The conventional NPV method is not good enough because it fails to account for the value of real options. Real options would create additional values for an investment project and hence may turn a negative-NPV project into an acceptable one. Failing to consider real options would cause underinvestment. b. c. d. 2. A manager do NOT want to consider deferring a project if a. Investing immediately would create a large first-mover advantage in the market b. More information can be collected to better estimate the cash flows. c. The cost of capital is expected to be lower in the future. d. The market demand is very low currently but may grow in the future. 3. In our example of replication option, what are the appropriate discount rates for cash flows? a. The WACC for all cash flows b. The risk-free rate for all cash flows. c. The risk-free rate for the initial investment of the replication project and the WACC for all others. The WACC for the initial investment of the replication project and the risk-free rate for all others. d. 4. In our example of abandonment option, the option is not exercised if the market demand turns out mediocre, because a. The project is a positive-NPV project in that scenario. b. The project enhances the shareholder wealth in that scenario. c. The project is a negative-NPV project, but terminating it would cut the loss. d. The project is a negative-NPV project, but terminating it would make it an even wor project. 5, Which of the following statements regarding real options is NOT correct