Question

Which type of real option allows the inputs in the production process to be altered if market conditions change during a project's life? O An input flexibility option An abandonment option O A shutdown option O An investment timing option Real option analysis adds value to a project when it is used for which of the following? Check all that apply. O Expanding the way that managers view risk and uncertainty, seeing them as phenomena to be appreciated and exploited rather than feared and avoided Modifying the way that decision makers perceive flexibility in capital budgeting activities Increasing the riskiness of the capital project and decreasing the project's cash flows Making managerial decision making less deliberate and analytical

Answer 1

Correct answer is option a. Input flexibility option

Input Flexibility Option allow the input to be changed depending upon the change in market conditions during its life.

Change in fashion or trend is an example where we can exercise Input flexibility option