The discounted cash-flow (DCF)approach should be
A)augmented by real options analysis even if there are no imbedded options.
B)augmented by added analysis if a decision has significant imbedded options.
C)jettisoned if there are any embedded options.
D)computed carefully to identify the options.

Question

Quizplus · Accepted Answer

The DCF approach should be augmented by added analysis if a decision has significant imbedded options. Real options analysis can help to identify and value these options, allowing for a more accurate valuation of the investment opportunity. However, if there are no imbedded options, real options analysis may not be necessary. Conversely, if there are embedded options, jettisoning the DCF approach would be unwise, as it is still a useful tool for estimating the value of the investment without taking options into account. Therefore, the best choice is B.

The Discounted Cash-Flow (DCF)approach Should Be