Green Health Foods has made the decision to invest in a new line of organic microwave dinners. The new line of dinners is a negative-NPV project; paying its suppliers to convert to organic practices will be expensive. However, the company will be in a good position to expand into more profitable lines of food if consumer demand for organic foods grows more than expected. The negative value of the organic dinner project most closely resembles:

Question

Quizplus · Accepted Answer

The negative-NPV project resembles the premium of a call option because it represents an investment that provides the company with the opportunity to capitalize on future growth in the organic market, similar to how a call option provides the right to buy an asset at a future date.

Green Health Foods Has Made the Decision to Invest in a New