Consider the following statement about real options:Sometimes real options can give managers the flexibility to decide to invest in a project or wait to make a more calculated decision. True or False: The preceding statement is correct.True False  Which type of real option allows a project to be expanded if demand turns out to be greater than expected?Expansion option Flexibility option Abandonment option Timing option  Consider the following example: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    .

Question
Asked Feb 8, 2020
6 views
Consider the following statement about real options:
Sometimes real options can give managers the flexibility to decide to invest in a project or wait to make a more calculated decision.
 
True or False: The preceding statement is correct.
True
 
False
 
 
Which type of real option allows a project to be expanded if demand turns out to be greater than expected?
Expansion option
 
Flexibility option
 
Abandonment option
 
Timing option
 
 
Consider the following example:
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    .
check_circle

Expert Answer

Step 1

Indicate whether the given statement is true or false:

It is true that sometimes real options can give managers the flexibility to decide to invest in a project or wait to make a more calculated decision.

Step 2

The type of real option which allows a project to be expanded if demand turns out to be ...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: An auto plant that costs $140 million to build can produce a line of flexfuel cars that will produce...

A: a-1 Computation of NPV: Excel spread sheet:

question_answer

Q: GTB, Inc. has a 25 percent tax rate and has $67.92 million in assets, currently financed entirely wi...

A: The cost of debt is 9%.The weight of debt in capital structure is 25%. So, the value of debt must be...

question_answer

Q: Quantitative Problem: You are holding a portfolio with the following investments and betas: Stock...

A: Portfolio beta is calculated as the sum of the weights of each stock in the portfolio multiplied by ...

question_answer

Q: Quad Enterprises is considering a new three-year expansion project that requires an initial fixed as...

A: Book value of the asset at the end of 3 years is calculated as below:

question_answer

Q: Find the total amount that must be repaid on the following note described. $8,573 borrowed at 16.5% ...

A: The accumulated value for the borrowed amount with simple interest rate can be calculated with the h...

question_answer

Q: Beyond Impossible Foods expects its EBIT to be $80,000 every year forever. The firmcan borrow at 6%....

A: The formula to calculate the value of unlevered firm is given below:

question_answer

Q: Off-The-Books Investment Firm, LLC, has offered you an investment it says will return to you $20,000...

A: Annual return on investment is 41.42%. Computation of annual return on investment: Excel spread shee...

question_answer

Q: Tefft Industires has an average inventory of $170,000, sells on term of 2/10, net 30, and its cost o...

A: Inventory conversion period is the number of days in which the inventory is stored before being sold

question_answer

Q: What are the implications of the change in present value based on risk (a decrease in FCF by 10%)? I...

A: Present Value:It is the current or discounted value of the future inflow and outflow. It is calculat...