Which one of the following statements is most CORRECT?
A) Real options change the size,but not the risk,of projects' expected NPVs.
B) Real options change the risk,but not the size,of projects' expected NPVs.
C) Real options can reduce the cost of capital that should be used to discount a project's expected cash flows.
D) Very few projects actually have real options.They are theoretically interesting but of little practical importance.
E) Real options are more valuable when there is very little uncertainty about the true values of future sales and costs.

Question

Quizplus · Accepted Answer

Real options can indeed affect the cost of capital used to discount a project's expected cash flows. They provide flexibility to adapt and make decisions in response to changes in the market or project conditions, which can reduce the risk associated with a project. This reduction in risk can lead to a lower cost of capital.

Which One of the Following Statements Is Most CORRECT