The use of real options in capital budgeting
A)may raise the NPV of a capital project.
B)makes the analysis of the project considerably easier.
C)allows management to make decisions more quickly.
D)eliminates the need for calculating the project's risk adjusted discount rate.

Question

Quizplus · Accepted Answer

The use of real options in capital budgeting may raise the NPV of a capital project by considering the potential future flexibility and value of the project, which can result in a higher NPV. Real options analysis also requires more complex analysis and forecasting, and may actually take longer to make decisions. Real options analysis does not eliminate the need for calculating the project's risk-adjusted discount rate.

The Use of Real Options in Capital Budgeting