An abandonment option, in effect,
A)limits the flexibility of management's decision-making.
B)limits the downside risk of an investment project.
C)limits the profit potential of a proposed project.
D)applies only to new projects.

Question

Quizplus · Accepted Answer

An abandonment option provides the option to abandon an investment project before the end of its useful life, thereby limiting the downside risk of the project. It does not limit management's decision-making flexibility or the profit potential of the project.

An Abandonment Option, in Effect