The NPV computed using static DCF analysis is _________ if the project gives us the opportunity to invest additional funds if things go well; that is, it includes an option to expand.
A) Understated.
B) Overstated.
C) Accurately stated even.
D) Not conservative enough.
E) Useless.

Question

Quizplus · Accepted Answer

The NPV computed using static DCF analysis is understated if the project includes an option to expand. This is because static DCF does not account for the additional value that flexibility or options (such as the option to expand) can bring to a project.

The NPV Computed Using Static DCF Analysis Is _________ If