Which of the following is an advantage of using the real options approach of evaluating a project?
A) It results in better technology investment decisions than a cash flow analysis approach.
B) It is useful as technology investment scenarios often conform to the same capital market assumptions upon which the approach is based.
C) It is cheap to use in case of a firm undertaking solo new product development.
D) It is valuable only when there is no uncertainty in technology trajectories.

Question

Quizplus · Accepted Answer

The real options approach considers the flexibility of a project to adapt to changing conditions, and can result in better investment decisions than a cash flow analysis approach which assumes that project cash flows are deterministic. This is particularly relevant for technology investments where the future is uncertain and the real options approach can capture the value of the flexibility to change course or wait for new information before investing further.

Which of the Following Is an Advantage of Using the Real