Real Options Multiple Choice Questions 1. We have step-by-step … Abandonment Options: In this type of real option, the project can be closed down if there is adequate cash flows or lower cash flows. Growth Options: In this type of real option, the project can be extended if there is adequate demand which is stronger than projected. Option to Abandon Operations Option to invest The option to invest is a classic example of a call option, and it is the flip of the option to delay investment. • The exercise price is equal to the up-front investment required to set the project in motion. Textbook solution for Intermediate Financial Management (MindTap Course… 13th Edition Eugene F. Brigham Chapter 13 Problem 14MC. It is also called as expansion option. There are two types of options: calls and puts. The real options approach to the analysis of capital investment projects can be found in many areas, for example the development of natural oil fields, the valuation of high-tech companies, the valuation of manufacturing flexibility, and the valuation of entry to or exit from a market. Options control the property for a minimum investment so that during the option period certain objectives can be met. The following are the main types of real options: (I) The option to expand if the immediate investment project succeeds (II) The option to wait (and learn) before investing (III) The option to shrink or abandon a project Start studying Types of Real Option. Exotic options are the classes of option Options: Calls and Puts An option is a form of derivative contract which gives the holder the right, but not the obligation, to buy or sell an asset by a certain date (expiration date) at a specified price (strike price). Real options theory is based on logical financial options in capital investments in the sense that they create a certain level of valuable flexibility. Types of Real Options • Option to Expand – Build production capacity or the infrastructure for the capacity in excess of expected level of output (so it can produce at • Option to Expand – Build production capacity or the infrastructure for the capacity in excess of expected level of output (so it can produce at Option to Invest vs Delay investment 2. Option to Expand 3. Learn vocabulary, terms, and more with flashcards, games, and other study tools. We will consider three types of real options: 1. If you have financial options, you then have the freedom to make the best choices and decisions, such as where and when to make a specific capital investment. Real Estate Option Types There are many types of options that investors can use in real estate, note, and personal property investments.

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