9. Real options Projects are also often embedded with different options that can

Question

9. Real options 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 and the obligation to buy, sell, or transform an asset at a set price during a specified period of time. O False True Which type of real option allows a firm to postpone a project until it can gather more information or market conditions change? An expansion option An investment timing option A growth 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. Making managerial decision making less deliberate and analytical Identifying real options that can be sold in the financial markets Modifying the way that decision makers perceive flexibility in capital budgeting activities Making changes to the capital budget before it is started and financed

Explanation / Answer

False- Real option gives the right but not the obligation

An investment timimng option will give right to postpone as it can invest later until it has more knowledge

2nd option is applicable as it provides proper valuation for stock options

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