Consider the following statement about real options: The value of a real option is found by taking the difference between the expected NPV of a project with the option and the expected NPV of the project without the option. True or False: The preceding statement is correct. False True Which type of real option allows a firm to shut down a project if its cash flows are lower than expected? Investment timing option Flexibility option Abandonment option Growth option King Snowplows began operations in New York City two years ago. As an independent contractor, the company does the majority of its business working for the city. The company also had offers from surrounding cities in New Jersey and Long Island, but these offers would have required the company to invest in additional snowplows—which have high up-front costs. King Snowplows decided to purchase only the snowplows necessary to handle its contract with New York City. The company will pursue the additional contracts with the cities in New Jersey and Long Island in the future if it thinks that the additional contracts justify investing in more snowplows. This example describes a real option to .
Consider the following statement about real options: The value of a real option is found by taking the difference between the expected NPV of a project with the option and the expected NPV of the project without the option. True or False: The preceding statement is correct. False True Which type of real option allows a firm to shut down a project if its cash flows are lower than expected? Investment timing option Flexibility option Abandonment option Growth option King Snowplows began operations in New York City two years ago. As an independent contractor, the company does the majority of its business working for the city. The company also had offers from surrounding cities in New Jersey and Long Island, but these offers would have required the company to invest in additional snowplows—which have high up-front costs. King Snowplows decided to purchase only the snowplows necessary to handle its contract with New York City. The company will pursue the additional contracts with the cities in New Jersey and Long Island in the future if it thinks that the additional contracts justify investing in more snowplows. This example describes a real option to .
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider the following statement about real options:
The value of a real option is found by taking the difference between the expected NPV of a project with the option and the expected NPV of the project without the option.
True or False: The preceding statement is correct.
False
True
Which type of real option allows a firm to shut down a project if its cash flows are lower than expected?
Investment timing option
Flexibility option
Abandonment option
Growth option
King Snowplows began operations in New York City two years ago. As an independent contractor, the company does the majority of its business working for the city. The company also had offers from surrounding cities in New Jersey and Long Island, but these offers would have required the company to invest in additional snowplows—which have high up-front costs. King Snowplows decided to purchase only the snowplows necessary to handle its contract with New York City. The company will pursue the additional contracts with the cities in New Jersey and Long Island in the future if it thinks that the additional contracts justify investing in more snowplows.
This example describes a real option to .
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