The option to abandon is:
A)a real option.
B)usually of little value because of the costs associated with abandonment.
C)irrelevant in capital budgeting analysis.
D)generally ignored.
E)of no value to a project.

Question

Quizplus · Accepted Answer

The option to abandon is a real option, which refers to the value of the flexibility to change course or abandon a project in response to changing market conditions or unexpected outcomes. It has value because it provides flexibility and reduces downside risk. While there may be costs associated with abandonment, these costs can be weighed against the potential benefits of exercising this option.

The Option to Abandon Is