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1. The right but not the obligation to 1. The right but not the obligation to 1.

1. The right but not the obligation to


take some future action. take some future action. take some future action.
-REAL OPTION 2. It is the difference between the 2. It is the difference between the
2. It is the difference between the expected NPVs with and without expected NPVs with and without
expected NPVs with and without relevant option. relevant option.
relevant option. 3. An option as to when to begin a 3. An option as to when to begin a
-OPTION VALUE project. project.
4. An option that permits operations 4. An option that permits operations
3. An option as to when to begin a
to be altered depending on how to be altered depending on how
project.
conditions change during project's conditions change during project's
-INVESTMENT TIMING OPTION life. life.
4. An option that permits 5. A comparison of actual versus 5. A comparison of actual versus
operations to be altered expected results for a given capital expected results for a given capital
depending on how conditions project. project.
change during project's life. 6. The size of the capital budget 6. The size of the capital budget
-FLEXIBILITY OPTION where the rate of return on the where the rate of return on the
5. A comparison of actual versus marginal project is equal to the marginal project is equal to the
expected results for a given capital marginal cost of capital. marginal cost of capital.
project. 7. The option of stopping a project if 7. The option of stopping a project if
-POST-AUDIT operating cash flows turn out to be operating cash flows turn out to be
6. The size of the capital budget lower than expected. lower than expected.
where the rate of return on the 8. A graph of the marginal rates of 8. A graph of the marginal rates of
marginal project is equal to the return on investment at different return on investment at different
marginal cost of capital. levels of investment, ranked from levels of investment, ranked from
-OPTIMAL CAPITAL BUDGET highest to lowest IRR. highest to lowest IRR.
9-10. Give 2 types of real options 9-10. Give 2 types of real options
7. The option of stopping a project
if operating cash flows turn out to
be lower than expected. 1. The right but not the obligation to
-ABANDONMENT OPTION take some future action. 1. The right but not the obligation to
2. It is the difference between the take some future action.
8. A graph of the marginal rates of
expected NPVs with and without 2. It is the difference between the
return on investment at different
relevant option. expected NPVs with and without
levels of investment, ranked from 3. An option as to when to begin a relevant option.
highest to lowest IRR. project. 3. An option as to when to begin a
-IRR SCHEDULE 4. An option that permits operations project.
9-10. Give 2 types of real options to be altered depending on how 4. An option that permits operations
-Growth (or expansion); conditions change during project's to be altered depending on how
abandonment; investment timing; life. conditions change during project's
output flexibility; input flexibility 5. A comparison of actual versus life.
expected results for a given capital 5. A comparison of actual versus
1. The right but not the obligation to project. expected results for a given capital
take some future action. 6. The size of the capital budget project.
2. It is the difference between the where the rate of return on the 6. The size of the capital budget
expected NPVs with and without marginal project is equal to the where the rate of return on the
relevant option. marginal cost of capital. marginal project is equal to the
3. An option as to when to begin a 7. The option of stopping a project if marginal cost of capital.
project. operating cash flows turn out to be 7. The option of stopping a project if
4. An option that permits operations lower than expected. operating cash flows turn out to be
to be altered depending on how 8. A graph of the marginal rates of lower than expected.
conditions change during project's return on investment at different 8. A graph of the marginal rates of
life. levels of investment, ranked from return on investment at different
5. A comparison of actual versus highest to lowest IRR. levels of investment, ranked from
expected results for a given capital 9-10. Give 2 types of real options highest to lowest IRR.
project. 9-10. Give 2 types of real options
6. The size of the capital budget
where the rate of return on the
marginal project is equal to the
marginal cost of capital.
7. The option of stopping a project if
operating cash flows turn out to be
lower than expected.
8. A graph of the marginal rates of
return on investment at different
levels of investment, ranked from
highest to lowest IRR.
9-10. Give 2 types of real options