Which of the following is an example of a "flexibility" option?

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A)A company agrees to pay more to build a plant in order to be able to change the plant's inputs/outputs at a later date if conditions change

B)A company has an option to invest in a project today or to wait a year

C)A company has an option to close down an operation if it turns out to be unprofitable

D)A company invests in a project today to gain information that may enable it to expend into different markets at a later date

Which of the following is TRUE?

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A)A company should take on a project as soon as it becomes financially viable (i.e. when its NPV exceeds zero)

B)A project can be viewed as an option if and only if there is no barrier to entry that prevent competitors from replicating it

C)The value of a project will increase as the volatility of the industry and the technology underlying the project increases

D)A company with valuable patents, which do not yet generate cash flows and earnings, will be undervalued using traditional discounted cash flow (DCF) valuation