Companies often have to increase their initial investment costs to obtain real options. Whymight this be so, and how could a firm decide whether it was worth the cost to obtain agiven real option?
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Companies often have to increase their initial investment costs to obtain real options. Why
might this be so, and how could a firm decide whether it was worth the cost to obtain a
given real option?
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- Why must real options have positive value? (Select all the choices that apply.) A. Having the real option but not the obligation to act is valuable. B. Real options must have positive value because they can always be sold to recover the initial investment. C. Real options must have positive value because they are only exercised when doing so would increase the value of the investment. D. If exercising the real option would reduce value, managers can allow the option to go unexercised.Which of the following will NOT increase the value of a real (call) option? Group of answer choices: A decrease in the probability that a competitor will enter the market of the project in question. An increase in the risk-free rate A decrease in the cost of obtaining the real option Lengthening the time in which a real option must be exercised. A decrease in the volatility of the underlying source of risk.A. Is selling a put option the same as buying a call option? Explain your answer. B. What is a market portfolio? How is it related to the concept of diversification? Would an investor who dislikes risk prefer investing in the market portfolio or a single firm´s stocks? C. What is a production bottleneck? How can a production bottleneck be identified using the simplex method (explain verbally). D. Which of the following pairs of firms sell competing products? Justify your answer. (You can use the internet to find out what each of these firms does.) (i) NorgesGruppen and Bunnpris (ii) NorgesGruppen and DNB (iii) NorgesGruppen and Equinor (iv) NorgesGruppen and McDonalds (v) NorgesGruppen and Orkla (vi) NorgesGruppen and Salma
- “Even in an efficient market, it is still valid to seek out a ‘favourable’ rate of return from an equity investment. In an efficient market, one security is as good as any other.” Do you agree? Why?Which of the below statements is false about real options? A. Real options increase firm value B.Investing in a project can be priced as an American call option C.Abandoning a project can be priced as an American put option D.Growth options have no impact on the market value of the firmWhich of the following contributes positively to the value of a real option to delay investment? First-mover competitive advantages It lowers idiosyncratic risk, and thus the firm's cost of capital Delaying project revenues, due to TVM The likely resolution of some uncertainty
- what is meant by the value of a potential takeover target as an independent firm ? when can a financial analyst can just use the current market valuation as the starting point for the valuation? what cant they? what is the difference between these two valuation, if any?“Even in an efficient market, it is still valid to seek out a ‘favourable’ rate of returnfrom an equity investment. In an efficient market, one security is as good as any other.”Do you agree with this statement? Discuss your point of view.Consider the following statement: “In contexts of increased uncertainty, the usefulness of real options when valuing an investment opportunity increases”. Do you agree with this statement? Explain your answer.
- If all investors believe that the market is efficient, could that eventually lead to less efficiency in the market? Explain with an example.You might want to sell an option to prevent further losses if its market price is dropping. True FalseArbitrage is the idea that one can (select the best answer): Group of answer choices Buy and Sell different assets or packages of assets at different prices such you can earn a riskless profit without investing any capital. Earn rates of return greater than the average for the market by successfully “picking” stocks. Earn abnormal returns above what CAPM would predict for a particular security.