The Potential Decision to Abandon a Project Has Option Value

question 88

Multiple Choice

The potential decision to abandon a project has option value because:

• A)abandonment can occur at one specific point in the future.
• B)a project may be worth more dead than alive.
• C)management is locked into a negative outcome.
• D)future demand may exceed expectations.
• E)the project may be worth more if its commencement is delayed.

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Definitions:

Asset

An economic resource that can be owned or controlled to produce value and that is held to have positive economic value.

Liability

A financial obligation or debt that an entity is required to pay to another party, often arising from past transactions or events.

Revenue

The total amount of money generated by a company from its normal business operations, before any deductions are made.