Which one of the following statements best describes the most likely impact that a profitable abandonment option would have on a project's expected cash flow and risk?
A) No impact on the PV of expected cash flows,but risk will increase.
B) The PV of expected cash flows increases and risk decreases.
C) The PV of expected cash flows increases and risk increases.
D) The PV of expected cash flows decreases and risk decreases.
E) The PV of expected cash flows decreases and risk increases.

Question

Quizplus · Accepted Answer

A profitable abandonment option allows the company to abandon the project if it is not producing the desired profits. This reduces the risk of the project not meeting its financial goals. As a result, the PV of expected cash flows increase and risk decreases.

Which One of the Following Statements Best Describes the Most