8. Real options Aa Projects are also often embedded with different options that

Question

8. Real options Aa 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 mode's 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 transform an asset at a set price during a specified period of time. O False O True Which type of real option allows a firm to shut down a project if its cash flows are lower than expected? O A growth option O An abandonment option O An input flexibility option O An expansion option Real option analysis adds value to a project when it is used for which of the following? Check all that apply. Modifying the way that decision makers perceive flexibility in capital budgeting activities Making managers aware of the consequences of their decisions and actions on the creation or destruction or value for a capital project Making managerial decision making less deliberate and analytical Increasing the riskiness of the capital project and decreasing the project's cash flows

Explanation / Answer

Traditionally, when sellers put their home on the market, they can consider many buyers and sell to whomever they want. But when an option contract is introduced to the mix, that all changes—the buyer gets the exclusive right to buy the property but is not obligated to do so. Here’s how real estate option contracts work.

The basics of option contracts

A real estate purchase option is a contract on a specific piece of real estate that allows the buyer the exclusive right to purchase the property.

Once a buyer has an option to buy a property, the seller cannot sell the property to anyone else. The buyer pays for the option to make this real estate purchase. The option usually includes a predetermined purchase price and is valid for a specified term, such as six months to a year. However, the buyer does not have to buy the property, whereas the seller is obligated to sell to the buyer within the terms of the contract.

1) True

2) Abandonment option

3) a,b,c

Related Questions

Navigate

• Browse (All)
• Browse 8
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.