The difference between the NPV of the investment and the value of the option to invest is:

A. The value for the option to invest still have a positive value at high interest rates while the NPV could be negative.

B. The value of the option to invest has a negative value at low interest rates while NPV could have high positive value.

C. The value for the option to invest still have a negative value at high interest rates while the NPV could be negative.

D. The value of the option to invest and the NPV of the project are unrelated.

If management initially choose to build capacity in excess of the expected level of output, the strike price can be:

A.   Small

B. Medium

C. Large

D. Extra-large

Which of the following is the problem of NPV approach:

A. Embedded option included in projects have risk characteristics and require different discount rates.

B. the traditional NPV approach can not estimate the appropriate risk-adjusted discount rate for the base project.

C.  It cannot determine the value of discount rate.

D.  It can determine the value of discount rate just in case of valuing a call option or a put option.

Which of the following is NOT a real option?

A. The option to expand into a new geographic region.

B. The option to abandon a project.

C. The option to switch the type of fuel used in an industrial furnace.

D. The option to buy shares of stock if its price goes up.

Which are the steps in common way to calculate risk-adjusted discount rate:

A. Take a sample -> Calculate the Mean and Standard Deviation -> Set the required rate of return.

B. Take a sample -> Calculate the Beta and average them -> Set the required rate of return 

C. Take a sample -> Calculate the Mean and Standard Deviation -> Set the opportunity cost

D. Take a sample -> Calculate the Beta and average them -> Set the opportunity cost.

Rejecting an investment today forever might not be a good choice because:

(I) There are always errors in the estimation of the NPVs

(II) The option value is negative.

(III) The company is foregoing future rights or the option to make the investment if economic and industry conditions change for the better

In terms of a real option, the cashflow from the project play the same role as:

An example of a real option is:

Which of the following is most correct?

A) Real options change the risk, but not the size of projects’ expected cash flows

B) Real options change the size, but not the risk of projects’ expected cash flows

C) Real options are likely to reduce the cost of capital that should be used to discount a project’s expected cash flows.