Which of the following statements is FALSE?
A)Traditionally,managers have used the equivalent annual benefit method to choose between projects of different lives.
B)The equivalent annual benefit method ignores the value of any real options because it assumes that the projects will always be replaced at their original terms.
C)If the future costs (or benefits)are certain with mutually exclusive projects,then we must use a real options approach to determine the correct decision.
D)The equivalent annual benefit method accounts for the difference in project lengths by calculating the constant payment over the life of the project that is equivalent to receiving the NPV today and then selecting the project with the higher equivalent annual benefit.

Question

Quizplus · Accepted Answer

This statement is false because a real options approach may still not be necessary even if future costs or benefits are certain with mutually exclusive projects. The decision between the projects can still be made using traditional methods such as net present value or equivalent annual benefit if there are no real options present. Real options would only need to be considered if there are additional uncertainties or contingencies that could affect the future cash flows of the projects.

Which of the Following Statements Is FALSE