Franklin Foods has made the decision to invest in a new line of organic microwav

Question

Franklin Foods has made the decision to invest in a new line of organic microwave dinners. The new line of dinners is a negative-NPV project; paying its suppliers to convert to organic practices will be expensive. However, the company will be in a good position to expand into more profitable lines of food if consumer demand for organic foods grows more then expected. The negative value of the organic dinner project most closely resembles:

A. the strike price of a call option on future organic projects. B. the premium of a call option on future organic projects. C. the premium of a put option on future organic projects. D. the strike price of a put option on future organic projects.

Explanation / Answer

B. the premium of a call option on future organic projects.

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