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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