If a Project Has Optionality

question 33

Multiple Choice

If a project has optionality:

• A)the shorter the available life of the project the less valuable the project is.
• B)the longer the available life of the project the less valuable the project is.
• C)the shorter the available life of the project the more valuable the project is.
• D)available project life does not change optionality.
• E)None of the above.

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Definitions:

Bankruptcy

A judicial process concerning an individual or company that cannot settle its due financial obligations.

M&M Without Taxes

A part of Modigliani and Miller's theory on corporate finance that suggests market value of a firm is unaffected by its capital structure in a tax-free environment.

M&M With Taxes

Modigliani and Miller's theory incorporating the impact of taxes on capital structure decisions.

Static Theory of Capital Structure

A concept proposing an optimal capital structure for firms that maximizes value by balancing the benefits of debt tax shields against the costs of financial distress.