Each of the Following Is Considered a Limitation of the Real

question 19

Multiple Choice

Each of the following is considered a limitation of the real options model of investment valuation except:

• A) the model is based on cash flow projections, rather than any intangibles.
• B) cumulative volatility adds an explicit incorporation of uncertainty into the model.
• C) the risk exposures are increased relative to other valuation models.
• D) the complexity of the model may act as a deterrent to IT managers from using it.

---

Definitions:

Non-Controlling Interest (NCI)

A financial interest in a subsidiary attributed to shareholders outside of the controlling shareholder group, reflecting their share of the entity's equity that isn’t controlled by the parent company.

Identifiable Net Assets (INA) Method

is a technique used in business combinations to value the acquired company by summing the fair values of its identifiable assets and liabilities.

Proportionate Consolidation Method

An accounting technique used for joint ventures, where an entity's share of each of the assets, liabilities, income, and expenses are combined line by line with similar items in the entity's financial statements.

Non-Controlling Interest (NCI)

It represents the equity in a subsidiary not attributable, directly or indirectly, to the parent company.