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
IV. The option to vary the mix of output or the firm's production methods
A) I only
B) I and II only
C) I, II, and III only
D) I, II, III, and IV only

Question

Quizplus · Accepted Answer

All four types of real options listed are valid options that a firm may have when considering investment projects. The option to expand if the investment succeeds is called the option to scale or to grow. The option to wait and learn is called the option to delay. The option to shrink or abandon a project is called the option to abandon. The option to vary the mix of output or the firm's production methods is called the option to switch. These options can add value to a project and should be considered when making investment decisions.

The Following Are the Main Types of Real Options