True concerning project with embedded options

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Reference no: EM131875732

Which of the following statements is true concerning a project with embedded options?

Traditional NPV analysis may understate the value of a project that has embedded options.

Disregarding embedded options is fine provided that a project's NPV is positive.

Embedded options may change both the cash flows and risk associated with a project.

A. I only

B. I and II only

C. I and III only

D. I, II, and III

You have just completed a capital investment analysis and have determined the expected profitability index (PI) to be 1.34. What is the meaning of an expected PI of 1.34?

A. The project will achieve a payback of the initial investment in 1.34 years.

B. The project is expected to have an annual return on investment of 134 %.

C. The project is 1.34 times more expensive than its net present value.

D. The project is expected to create $1.34 of pressent value per investment dollar.

Reference no: EM131875732

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