Lighthouse Corporation Uses the NPV Method for Selecting Projects,and It

question 13

Multiple Choice

Lighthouse Corporation 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 small, because projects' NPVs are often larger when real options are taken into account.
• B)Its estimated capital budget is probably too large due to its failure to consider abandonment and growth options.
• C)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.
• D)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.

---

Definitions:

Hyperventilate

A condition where an individual breathes at an abnormally rapid rate, leading to decreased carbon dioxide levels in the blood.

Metabolic Demands

The amount of energy (calories) required by the body for basic functioning and to support physical activity.

Temperature

A measure of the warmth or coldness of an object or environment, typically expressed in degrees Celsius or Fahrenheit, indicative of the kinetic energy of particles.

Anxiety

A mental health disorder characterized by feelings of worry, anxiety, or fear that are strong enough to interfere with one's daily activities.