1. Valuing real options Real options give the holder the right, but not the obli
ID: 2814112 • Letter: 1
Question
1. Valuing real options Real options give the holder the right, but not the obligation, to undertake business decisions-typically those that involve capital investments. Which of the following examples of assets are involved in the valuation of real options? O Stocks and bonds O Property, plant, and equipment True or False: The presence of managerial, or real, options decreases the value of an investment project O False O True Which of the following statements is most accurate about real options? O Real options can give managers the flexibility to decide to either invest in a project or wait to make a more o Real options do not give managers the flexibility to decide to either invest in a project or w to make a more O Real options always give managers the flexiblity to decide to either invest in a projet or wait to make a more O Real options restrict managers to waiting before deciding on making an investment in a calculated decision at a later date. calculated decision at a later date. calculated decision at a later date.Explanation / Answer
1. Property Plant and Equipment. A real option is to invest in business activities of capital investment project. Thus Property Plant and Equipment is an example of real option
2. False. The presence of managerial, or real, options increases the value of an investment project. because as an investment in real options the investor expects increase in the value thus the presence will increase the value of investment project
3. Option A. Real option can give managers the flexibility to decide to invest in a project or wait to make a more calculated decision at a later date. With real option manager can think about investing now or at a later but it happends sometimes only and not every time thus option A is correct
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