Real Options Can Have the Effect of

question 26

Multiple Choice

Real options can have the effect of

• A)increasing a project's NPV.
• B)reducing a project's risk.
• C)gaining information about future opportunities.
• D)All of the above.

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Definitions:

Profitability Index

A calculation that determines the relative profitability of an investment, calculated by dividing the present value of future cash flows by the initial investment cost.

Investment Projects

Initiatives undertaken by businesses or individuals that involve committing resources with the expectation of generating future financial returns.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Cash Inflows

Refers to the money received by a business from its various sources, such as sales revenue, investment income, and financing.