Consider the following statement about real options: Decision tree analysis is more commonly used in valuing securities than real assets. True or False: The preceding statement is correct. O False O True which type of real option allows the output and/or inputs in the production process to be altered, depending on how market conditions change during a project's life? O Flexibility option O Abandonment option O Timing option O Expansion option Consider the following example: Clemens Inc. is considering a$100 million investment in a new line of soft drinks. However, $100 million is a huge investment for Clemens; if things turn bad, it could wipe out the company. A few senior managers have suggested a smaller investment of $20 million to see if the market is as strong as they hope it is. If demand is strong and the apportunity is still available, Clemens will increase its investment ata later date. This example describes a real option to

Question

Claire Lawrence

Business

13 April, 15:45

Consider the following statement about real options: Decision tree analysis is more commonly used in valuing securities than real assets. True or False: The preceding statement is correct. O False O True which type of real option allows the output and/or inputs in the production process to be altered, depending on how market conditions change during a project's life? O Flexibility option O Abandonment option O Timing option O Expansion option Consider the following example: Clemens Inc. is considering a$100 million investment in a new line of soft drinks. However, $100 million is a huge investment for Clemens; if things turn bad, it could wipe out the company. A few senior managers have suggested a smaller investment of $20 million to see if the market is as strong as they hope it is. If demand is strong and the apportunity is still available, Clemens will increase its investment ata later date. This example describes a real option to

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Miguel Ryan · Answer 1

Flexibility option

Explanation:

False: It can be used equally for both.

Firms often have an option to vary inputs to the production or change the output from production. Such options are known as flexible production options. / real option to expand.