Firms spend an increasing amount of time evaluating real options, which are:
A)Options on real assets such as an option to abandon
B)Call and put options traded on organized exchanges
C)Call options such as warrants and convertible bonds
D)Put options such as held by shareholders of a firm with financial leverage

Question

Quizplus · Accepted Answer

Real options are options that involve real assets such as an option to abandon a project, expand a facility, or enter a new market. Firms spend more time evaluating these types of options as they provide flexibility and potentially increase the value of the firm. Option B, C, and D refer to financial options traded on organized exchanges or issued by the firm, which are different from real options.

Firms Spend an Increasing Amount of Time Evaluating Real Options