Franklin 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 then expected. The negative value of the organic dinner project most closely resembles:

Question

Quizplus · Accepted Answer

The negative NPV of the project represents the premium of a call option on future organic projects, as it provides the company with the opportunity to expand into more profitable lines if demand increases.

Franklin Foods Has Made the Decision to Invest in a New