Valuing an Option to Expand Includes

question 13

Multiple Choice

Valuing an option to expand includes

• A)the added value that will be received from the expended production that will result in the expansion.
• B)the net cost of the expansion.
• C)treating the expansion as a separate project and determining a NPV for the new project.
• D)only the additional profit that the firm will receive as a result of increased production.

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Definitions:

Days' Sales

A measure of how quickly a company can convert its inventory into sales, often used to assess liquidity and operational efficiency.

Inventory Management

The practice of overseeing and controlling the ordering, storage, and use of components that a company will use in the production of items it will sell, as well as overseeing and controlling quantities of finished products for sale.

Merchandise Inventory

The total value of a company's goods that are ready for sale at any given time, including both finished goods and goods in various stages of production.

Consigned Goods

Items that are sent by their manufacturer to a third party, but still remain the property of the manufacturer until sold.