Question
Projects are also often embedded with different options that can help making decisions under uncertainty. There are techniques used to evaluate these embedded options which
Projects are also often embedded with different options that can help making decisions under uncertainty. There are techniques used to evaluate these embedded options which are called real options. The models used to value these options are based on the type of the real option available for the project.
-True or False: A real option embedded in a capital project gives the investing firm the right and the obligation to buy, sell, or transfer an asset at a set price during a specified period of time.
True
False
The managers of Amalgamated Football League Inc. have included a shutdown option into the design of a proposed capital investment project:
I. This option provides a firm with the flexibility to make potentially profitable investments in the future that would not have been possible if the initial project had not been undertaken | |
II. This option allows a firm to temporarily terminate operations in order to prevent experiencing negative cash flows. | |
III. This option allows a project to be expanded if demand turns out to be greater than expected. | |
IV. This option allows the outputs of the production process to be altered if market conditions change during a projects life. |
-Which of the listed statements best describes a shutdown option?
Statement II
Statement I
Statement III
Statement IV
None of the statements listed above describes a shutdown option.
-Real option analysis adds value to a project when it is used for which of the following? Check all that apply.
Making changes to the capital budget before it is started and financed
Making managerial decision making less deliberate and analytical
Identifying real options that can be sold in the financial markets
Expanding the way that managers view risk and uncertainty, seeing them as phenomena to be appreciated and exploited rather than feared and avoided
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started