Gleason Research Regularly Takes Real Options into Account When Evaluating

question 3

Multiple Choice

Gleason Research regularly takes real options into account when evaluating its proposed projects.Specifically,it considers the option to abandon a project whenever it turns out to be unsuccessful (the abandonment option) ,and it evaluates whether it is better to invest in a project today or to wait and collect more information (the investment timing option) .Assume the proposed projects can be abandoned at any time without penalty.Which of the following statements is CORRECT?

• A) The abandonment option tends to reduce a project's NPV.
• B) The abandonment option tends to reduce a project's risk.
• C) If there are important first-mover advantages,this tends to increase the value of waiting a year to collect more information before proceeding with a proposed project.
• D) A project can either have an abandonment option or an investment timing option,but never both.
• E) Investment timing options always increase the value of a project.

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Definitions:

Good-News Message

A communication technique used in business writing or email to convey positive or favorable information to the recipient.

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Direct Sales Messages

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Persuasive Arguments

Statements designed to convince or influence others to accept a particular point of view.