Unformatted text preview: might be riskier than first assessed. Also, if the project’s assets can be redeployed within the firm or can be easily sold, then, as a result of “abandonment possibilities,” the project may be less risky than the analysis indicates. n. What is a real option? What are some types of real options? Answer: Real options exist when managers can influence the size and risk of a project’s cash flows by taking different actions during the project’s life in response to changing market conditions. 1. Investment timing options 2. Growth options a. Expansion of existing product line b. New products c. New geographic markets 3. Abandonment options a. Contraction b. Temporary suspension c. Complete abandonment 4. Flexibility options....
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- Spring '08
- Corporate Finance, Percentage point, Real options analysis