Which of the Following Statements Regarding Real Options Is True

question 45

Multiple Choice

Which of the following statements regarding real options is true?

• A) The farther away the expiration date, the less valuable the option is.
• B) They can be incorporated into the capital budgeting decision process using decision trees.
• C) They allow decision makers to react to unfavorable, but not favorable, future information/news.
• D) Conventional DCF decision models (e.g., NPV) cannot incorporate the effects of real options.
• E) It is not possible to handle multiple real options embedded in a proposed investment project.

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Definitions:

Unknown Quantities

Variables in mathematical equations or problems that are yet to be determined or solved for.

Unknown Quantity

A value in mathematics or science that is not initially known but is sought through problem-solving.

Proportion

A portion, fraction, or quantity of something as it relates to the entirety.

Unknown Quantity

A variable or value in a mathematical equation or problem that is not known but can be solved for using given information.