Using the Real-Options Approach to Value a High-Growth Company Has

question 7

True/False

Using the real-options approach to value a high-growth company has an advantage over the discounted cash flow method in that it requires fewer estimates (e.g. ,it does not require a long-term revenue growth rate).

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Definitions:

Marginal Utility

The additional joy or advantage obtained from using one more unit of a good or service.

Diminishing

A principle that refers to a decrease or reduction in the effectiveness, value, or quantity of something over time or under certain conditions.

Additional Unit

An incremental quantity of a product or service, typically considered in the context of production or consumption.

Substitution Effect

The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods.