Real options analysis is most appropriate when
A) the total investment required is small, but the environment is uncertain.
B) the investment required can be justified by Discounted Cash Flow (DCF) techniques.
C) a small investment up front can be followed by a series of subsequent investments.
D) there is no prospect of obtaining additional knowledge before making subsequent investments.

Question

Quizplus · Accepted Answer

ROA is appropriate to use when investments can be staged; a smaller investment up front can be followed by subsequent investments. Real options can be applied to an investment decision that gives the company the right, but not the obligation, to make follow-on investments.

Real Options Analysis Is Most Appropriate When