Ashgate Enterprises Uses the NPV Method for Selecting Projects, and It

question 10

Multiple Choice

Ashgate Enterprises uses the NPV method for selecting projects, and it does a reasonably good job of estimating projects' sales and costs. However, it never considers real options that might be associated with projects. Which of the following statements is most likely to describe its situation?

• A) its estimated capital budget is probably too large due to its failure to consider abandonment and growth options.
• B) failing to consider abandonment and flexibility options probably makes the optimal capital budget too large, but failing to consider growth and timing options probably makes the optimal capital budget too small, so it is unclear what impact not considering real options has on the overall capital budget.
• C) failing to consider abandonment and flexibility options probably makes the optimal capital budget too small, but failing to consider growth and timing options probably makes the optimal capital budget too large, so it is unclear what impact not considering real options has on the overall capital budget.
• D) real options should not have any effect on the size of the optimal capital budget.
• E) its estimated capital budget is probably too small, because projects' npvs are often larger when real options are taken into account.

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Definitions:

Culture Shapes

The manner in which the prevailing culture of a society or organization influences behaviors, attitudes, and perceptions.

Stakeholders

Individuals or entities that have an interest or stake in the success and operations of a business, including employees, customers, investors, and suppliers.

Mass Production Technologies

Techniques and tools used in the production of large quantities of standardized products, typically utilizing assembly lines and automation to achieve high efficiency and lower costs.

Human Resource Management

The strategic approach to the effective management of people in an organization, focusing on maximizing employee performance.