Which one of the following is an example of a "flexibility" option?
A) A company has an option to close down an operation if it turns out to be unprofitable.
B) A company agrees to pay more to build a plant in order to be able to change the plant's inputs and/or outputs at a later date if conditions change.
C) A company invests in a project today to gain knowledge that may enable it to expand into different markets at a later date.
D) A company invests in a jet aircraft so that its CEO, who must travel frequently, can arrive for distant meetings feeling less tired than if he had to fly commercial.
E) A company has an option to invest in a project today or to wait a year.

Question

Quizplus · Accepted Answer

Option B describes a situation where a company is willing to pay more upfront in order to gain the flexibility to change inputs and/or outputs of a plant in the future. This provides the company with more options and allows it to adapt to changing market conditions. This is an example of a flexibility option. The other options do not demonstrate the same level of flexibility.

Which One of the Following Is an Example of a "Flexibility