The greater the uncertainty the uncertainty about future ________,the greater is the value of a real option.
A)interest rates
B)cash flows
C)profitability
D)economic cycles

Question

Quizplus · Accepted Answer

Real options refer to the financial strategy of taking advantage of opportunities that arise in the future. Real options are valuable as they enable companies to make decisions that are valuable even when conditions are unpredictable. Accordingly, the greater the uncertainty about future cash flows, the greater is the value of a real option. This is because it allows companies to adjust their decisions as conditions become more precise. Alternatively, economic cycles may also introduce uncertainties about cash flows, leading to the same conclusion. Interests rates and profitability, on the other hand, may affect cash flows but not necessarily introduce new uncertainties.

The Greater the Uncertainty the Uncertainty About Future ________,The Greater