Which of the Following Statements About "Real Options" Is True

question 15

Multiple Choice

Which of the following statements about "real options" is true?

• A)The existence of a real option may either increase or decrease the value of the project..
• B)The existence of a real option can lower the cost of capital associated with a project.
• C)Real options are very rare in practice.
• D)The existence of a real option may change the magnitude, but not the uncertainty, underlying expected future cash flows from the project.

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Definitions:

Taxable Income

The portion of income that is subject to tax after all deductions and exemptions have been applied according to tax law.

Tax Liability

The total amount of tax that an individual or entity is legally obligated to pay to tax authorities.

Average Tax Rate

The portion of total taxable income that is paid in taxes, calculated by dividing the total tax amount by the total income.

Average Tax Rate

The ratio of total taxes paid to total taxable income, representing the percentage of income that goes towards taxes.