Which of the following scenarios fails to describe a possible real option embedded in a project analysis?
A)A truck fleet outfitted with engines capable of running on five various types of fuel
B)A patent developed on a new process of slicing bread
C)A new product line started with future follow-on investments available
D)The articles of incorporation amended to allow for stock splits and reverse stock splits

Question

Quizplus · Accepted Answer

Amending articles of incorporation is a corporate finance decision that does not involve a real option. A real option involves the ability to make future strategic decisions based on market movements and other contingencies. A stock split or reverse stock split does not involve such flexibility. A, B, and C all involve real options because they offer opportunities to make future strategic decisions based on contingencies.

Which of the Following Scenarios Fails to Describe a Possible