Phased Investments,such as a Factory That Can Be Built in Stages

question 13

Multiple Choice

Phased investments,such as a factory that can be built in stages where each stage is contingent on those that precede it and where,at each decision point,management can continue the project by investing additional funds (an exercise price ) or abandon it for some estimated value,would best be categorized as:

• A)A swap.
• B)A follow-on option.
• C)A switching option.
• D)A case where option theory cannot apply.

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