Which of the following is the BEST example of a firm's investment in a "real option?"
A) Amazon purchases a vacant building and uses it for a new distribution warehouse.
B) Coca-Cola continuously invests in marketing in order to strengthen its global brand image
C) A pharmaceutical company develops a variety of drugs in the hope that one of them might become a "blockbuster" that cures a life-threatening illness
D) All of these are good examples of real options

Question

Quizplus · Accepted Answer

A real option is a strategic investment decision that provides the firm with the option to take a future course of action, based on the outcome of a current decision. Developing a variety of drugs, with the hope that one of them might become a "blockbuster" that cures a life-threatening illness, is a good example of real options because the pharmaceutical company invests in different drugs to give it the option to pursue the most profitable one in the future. Option A is an example of a capital expenditure, while Option B is an example of a brand-building strategy.

Which of the Following Is the BEST Example of a Firm's