Lighthouse Corporation Uses the NPV Method for Selecting Projects,and It

question 13

Multiple Choice

Lighthouse Corporation uses the NPV method for selecting projects,and it does a reasonably good job of estimating projects' sales and costs.However,it never considers real options that might be associated with projects.Which of the following statements is most likely to describe its situation?

• A)Its estimated capital budget is probably too small, because projects' NPVs are often larger when real options are taken into account.
• B)Its estimated capital budget is probably too large due to its failure to consider abandonment and growth options.
• C)Failing to consider abandonment and flexibility options probably makes the optimal capital budget too large, but failing to consider growth and timing options probably makes the optimal capital budget too small, so it is unclear what impact not considering real options has on the overall capital budget.
• D)Failing to consider abandonment and flexibility options probably makes the optimal capital budget too small, but failing to consider growth and timing options probably makes the optimal capital budget too large, so it is unclear what impact not considering real options has on the overall capital budget.

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Definitions:

Amblyopia

Lazy eye; a condition characterized by the inward turning of the affected eye.

Myopia

A defect in vision so that objects can only be seen when very near; nearsightedness.

Shape

The outline or contour that defines the form of an object or entity.

Blepharitis

An inflammation of the eyelids, which can cause irritation, redness, and dandruff-like scales on eyelashes.