The NPV of an Acquisition of a Manufacturer Operating at Full

question 23

True/False

The NPV of an acquisition of a manufacturer operating at full capacity may have a lower value than if the NPV is adjusted for a decision made at a later date to expand capacity. If the additional capacity is fully utilized, the resulting higher level of future cash flows may increase the acquisition's NPV. In this instance, the value of the real option to expand is the difference between the NPV with and without expansion.

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Definitions:

Television Sets

Electronic devices designed to receive broadcast signals and display television programming and other audiovisual content.

Arizona

A state located in the southwestern region of the United States, known for its desert landscape, the Grand Canyon, and rich Native American history.

Plant Capacity

The maximum output or producing ability of a facility, production plant, or machine.

Oxygen Constraint

A limitation in a process or environment where the availability of oxygen is a critical factor.