Which one of the following is NOT a real option?
A) The option to expand production if the product is successful.
B) The option to buy shares of stock if its price is expected to increase.
C) The option to expand into a new geographic region.
D) The option to abandon a project if cash flows turn out to be lower than expected.
E) The option to switch the type of fuel used in an industrial furnace to lower the cost of production.

Question

Quizplus · Accepted Answer

Options A, C, D, and E are examples of real options, which are choices a company has to make regarding real physical or tangible assets. Option B, the option to buy shares of stock if its price is expected to increase, is a financial option, not a real option. Real options involve decisions about real assets, not financial instruments.

Which One of the Following Is NOT a Real Option