Impact of a real option on value of investment opportunity

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Reference no: EM131526717

1. A problem associated with the payback method is:

a. it usually requires less time to compute than that required by the net present value method

b. it doesn't consider cash flows after the payback period

c. it assumes that all cash flows are invested at the cost of capital

d. it uses the time value of money concept

2. Which of the following describes the impact of a real option on the value of an investment opportunity?

A) real options add value to investment opportunities only when exercised

B) real options add value to investment opportunities

C) real options add value to investment opportunities but they are already included in the discount rate so they should not be added as incremental cash flows.

D) real options increase the costs of investment opportunities because suppliers charge extra for these options.

3. If projects X and Y are independent, which should be accepted?

A) Project X only

B) Project Y only

C) Neither project

D) Both projects

4. If projects X and Y are mutually exclusive, which should be accepted?

A) Project X only

B) Project Y only

C) Neither project

D) Both projects

Reference no: EM131526717

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