Which of the Following Statements Regarding Real Options Is NOT

question 47

Multiple Choice

Which of the following statements regarding real options is NOT correct?

• A) Real options enhance the forecast of a project's expected future cash flows by incorporating, at the start of the project, the effect of decisions that will be made at a later date.
• B) Real options give owners the right, but not the obligation, to exercise these opportunities at a later date.
• C) Real options build greater flexibility into a project and thus increase its net present value (NPV).
• D) Real options should only be exercised when they increase the NPV of a project.

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Definitions:

Subscribers

Individuals or entities that pay a subscription fee to receive or access a product or service.

Rent-seeking Behavior

Rent-seeking Behavior involves seeking to increase one's share of existing wealth without creating new wealth, often through manipulating the social or political environment.

Agricultural Price Supports

Government interventions to stabilize or increase agricultural commodity prices through various mechanisms such as subsidies or purchase commitments.

Marginal Cost

The additional cost incurred by producing one more unit of a product.