Projects are also often embedded with different options that can help making dec
ID: 2762985 • Letter: P
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 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 but not the obligation to buy, sell, or transform an asset at a set price during a specified period of time. False True Which type of real option allows the outputs of the production process to be altered if market conditions change during a project's life? An investment timing option An expansion option An output flexibility option A shutdown option Real option analysis adds value to a project when it is used for which of the following? Check all that apply. Increasing the riskiness of the capital project and decreasing the project's cash flows Making changes to the capital budget before it is started and financed Modifying the way that decision makers perceive flexibility in capital budgeting activities Making managerial decision making less deliberate and analyticalExplanation / Answer
Answer: True
Answer: Output Flexibility options allows the outputs of the production process to be altered if market conditions change during a project's life.
Answer:Modifying the way that decision makers perceive flexibility in capital budgeting activities
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