The potential decision to abandon a project has option value because:
A) abandonment can occur at any future point in time.
B) a project may be worth more dead than alive.
C) management is not locked into a negative outcome.
D) All of these.
E) None of these.

Question

Quizplus · Accepted Answer

All of these statements are true and explain why the potential decision to abandon a project has option value. Abandonment can occur at any point in time, giving management the option to halt the project if necessary. Additionally, sometimes a project may be worth more dead than alive, meaning that abandoning it may be the most financially beneficial option. Finally, having the option to abandon a project means that management is not locked into a negative outcome, which provides valuable flexibility.

The Potential Decision to Abandon a Project Has Option Value