Financial Management: Theory & Practice
16th Edition
ISBN: 9780357296776
Author: Eugene F. Brigham, Michael C. Ehrhardt
Publisher: Cengage Learning US
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Question
Chapter 26, Problem 3Q
Summary Introduction
To determine: The reason that timing options will be likely to be accepted today.
Introduction: The investment timing options is the option by which company does not need to implement the investment immediately rather this option provides an opportunity to wait before investment implementation after acknowledging the market uncertainties.
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Students have asked these similar questions
In general, do timing options make it more or less likely that a project willbe accepted today?
Should the project be accepted or rejected?
What factors verify that the project is marginally acceptable?
Chapter 26 Solutions
Financial Management: Theory & Practice
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Similar questions
- Would you expect an abandonment option to increase or decrease a project’sexpected NPV and risk (as measured by the coefficient of variation)? Explain.arrow_forwardWhen does a project deny the merit consideration?arrow_forwardWhat are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?arrow_forward
- What are the problems in using the Internal Rate of Return method when making decisions on which project/s to undertake?arrow_forwardHow is the Rate of return is an intuitively familiar and understandable measure of project?arrow_forwardWhy might recognizing the existence of a real option raise, but not lower, a project’sNPV as found in the traditional manner?arrow_forward
- Will the payback period, NPV, and IRR always lead to the same decision? Why or why not? If not, which one should be used?arrow_forwardHow does the higher project risk reflect a higher anticipated variability in a project's NPW?arrow_forwardDoes the Analysis Period differ from Project Lives? Explain how?arrow_forward
- Below are some statements about risk and investment appraisal. Which one is incorrect? A. Risk-adjusted hurdle rates could be used to allow for the risk of a project B. Risk could be allowed for in a project by shortening the pay-back period C. While sensitivity analysis does not directly imbed risk in the appraisal process it is helpful for identifying "key" variables D. Risk decreases with the length of a project E. Probability analysis can be used to allow for the risk of different economic conditionsarrow_forwardHow do flexibility options affect projects’ NPVs and risk?arrow_forward8.4. What is the criterion to be taken as basis when deciding on the payback period? Is the payback period method acceptable as the main criterion for project ассеptance? 8.5. Why is the NPV always accepted as a primary decision criterion?arrow_forward
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