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 avaliable for the project. True or False: A real option embedded in a capital project gives the irvesting firm the right but not 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 Footbail League Inc; have included an output flexibulity option into the design of a proposed capital imvestment project: 1. This option allows the outputs of the production process to be altered if market conditions change during a project's life. II. This option provides a firm with the flexibility to increase the capacity of an existing product linte, to add new products, or to expand Into new geogrophic markets. 1it. This option allows a firm to postpone a project until it con gather moce informstion or market conditions change. IV. This option allows a firm to temporarily terminate operations in order to prevent experiencing negative cash fiows. Which of the listed statements best describes an output flexibility option? Statement t Statement It 5tatement III Statement TV None of the statements listed above describes an output fexiblity option. The managers of Amalgamated Football League inc, have included an output flexibility option into the design of a proposed capital investment project 1. This option allows the outputs of the production process to be altered if market conditions change during a project's life. II. This option provides a firm with the flexibility to increase the capacity of an existing product line, to add new products, or to expand into new geographic markets. III. This option allows a firm to postpone a project until it can gather more information or market conditions change. IV. This option allows a firm to temporarily terminate operations in order to prevent experiencing negative cash flows. Which of the listed statements best describes an output fiexibility option? Statement I Statement If Statement III Statement IV None of the statements listed above describes an output flexibility option. Real option analysis adds value to a project when it is used for which of the following? Check all that apply. Making managers aware of the consequences of their decisions and actions on the creation or destruction of value for a capital project Making managerial decision making less deliberate and analytical Expanding the way that managers view risk and uncertainty, seeing them as phenomena to be appreciated and exploited rather than feared and avoided Making changes to the capital budget before it is started and financed
