Consider the following statement about real options: Sometimes real options can give managers the flexibility to decide to invest in a project or wait to make a more calculated decision.   True or False: The preceding statement is correct. True   False     Which type of real option allows a project to be expanded if demand turns out to be greater than expected? Expansion option   Flexibility option   Abandonment option   Timing option     Consider the following example: King Snowplows began operations in New York City two years ago. As an independent contractor, the company does the majority of its business working for the city. The company also had offers from surrounding cities in New Jersey and Long Island, but these offers would have required the company to invest in additional snowplows—which have high up-front costs. King Snowplows decided to purchase only the snowplows necessary to handle its contract with New York City. The company will pursue the additional contracts with the cities in New Jersey and Long Island in the future if it thinks that the additional contracts justify investing in more snowplows.   This example describes a real option to    .

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Consider the following statement about real options:
Sometimes real options can give managers the flexibility to decide to invest in a project or wait to make a more calculated decision.
 
True or False: The preceding statement is correct.
True
 
False
 
 
Which type of real option allows a project to be expanded if demand turns out to be greater than expected?
Expansion option
 
Flexibility option
 
Abandonment option
 
Timing option
 
 
Consider the following example:
King Snowplows began operations in New York City two years ago. As an independent contractor, the company does the majority of its business working for the city. The company also had offers from surrounding cities in New Jersey and Long Island, but these offers would have required the company to invest in additional snowplows—which have high up-front costs. King Snowplows decided to purchase only the snowplows necessary to handle its contract with New York City. The company will pursue the additional contracts with the cities in New Jersey and Long Island in the future if it thinks that the additional contracts justify investing in more snowplows.
 
This example describes a real option to    .
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