Which one of the following statements is correct?
A) Having the ability to temporarily cease operations is referred to as the option to abandon.
B) Strategic options are relatively easy to evaluate using discounted cash ﬂow analysis.
C) Ignoring the option to expand causes the net present value of a project to be overestimated.
D) The option to abandon a project has no real ﬁnancial value.
E) Ignoring the option to abandon causes the net present value of a project to be underestimated.

Question

Quizplus · Accepted Answer

Ignoring the option to abandon can lead to an underestimation of a project's net present value because it overlooks the potential financial benefit of ceasing operations to avoid further losses.

Which One of the Following Statements Is Correct