Jim Owns a Farm That He Wants to Sell

question 108

Multiple Choice

Jim owns a farm that he wants to sell.He learns that a highway will be built near the farm in the future,giving access to the farmland from a nearby city and thus making the land attractive to housing developers.Expecting the net present value (NPV) of the sale to be greater after the highway is built,he decides not to sell at this time.What real option is Jim taking?

• A)option to delay
• B)option to expand
• C)option to abandon
• D)option to switch
• E)option to sell

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Definitions:

Allocation Base B

Refers to a criterion or standard used to distribute costs among different cost objects, often used in activity-based costing.

Step-down Method

An accounting approach for distributing overhead expenses across different departments or products.

Personnel Department

The division within an organization tasked with managing employee-related processes including hiring, training, and benefits administration, commonly known as the human resources (HR) department.

Information Technology

The employment of computers, storage systems, networks, and various physical assets, infrastructure, and procedures to generate, process, safeguard, store, and share every type of electronic information.