On the notion of embedded options, which of the following is/are true?
A)If virtually all projects have embedded options, ignoring options is likely to lead to serious
Undervalution.
B)There are two possible outcomes for virtually every business idea.
C)Virtually every business has both the option to abandon and the option to expand.
D)All of the above.
E)Pundits rely solely on net present value approach for capital budgeting decisions.

Question

Quizplus · Accepted Answer

Option A and C are both true statements about embedded options. Ignoring options can lead to undervaluation because these options have value, and virtually every business has both the option to abandon and the option to expand. Option B is not entirely true, as there may be some business ideas that do not have two possible outcomes. Option E is not related to embedded options and is therefore not relevant to the question.

On the Notion of Embedded Options, Which of the Following