Which One of the Following Statements Is Most CORRECT

question 10

Multiple Choice

Which one of the following statements is most CORRECT?

• A) Real options change the size,but not the risk,of projects' expected NPVs.
• B) Real options change the risk,but not the size,of projects' expected NPVs.
• C) Real options can reduce the cost of capital that should be used to discount a project's expected cash flows.
• D) Very few projects actually have real options.They are theoretically interesting but of little practical importance.
• E) Real options are more valuable when there is very little uncertainty about the true values of future sales and costs.

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Definitions:

Production Costs

Production costs are the expenses incurred in the process of creating a product or service, including raw materials, labor, and overhead costs.

Circular Flow Diagram

A visual model that shows how goods, services, and money move through an economy in a circular manner between households and firms.

Firms

Business organizations or entities engaged in commercial, industrial, or professional activities with the goal of generating profits.

Resource Market

Markets where resources (or factors of production) like labor, capital, and raw materials are bought and sold.