Which of the following can be a benefit of an abandonment option?
A)Improve project NPV
B)Allow the company to delay the project
C)Lower project risk
D)Both a and c

Question

Quizplus · Accepted Answer

An abandonment option provides the flexibility to abandon a project if it turns out to be unprofitable or too risky. This can lower project risk by avoiding sunk costs and allowing the company to cut losses. Furthermore, the option to abandon can result in a higher net present value (NPV) by factoring in the potential salvage value of the project's assets. Therefore, both options A (Improve project NPV) and C (Lower project risk) are benefits of having an abandonment option. Option B (Allow the company to delay the project) is not necessarily a benefit of an abandonment option, as delaying a project does not necessarily require the option to abandon it.

Which of the Following Can Be a Benefit of an Abandonment