Which of the following is a real option with respect to a capital budgeting decision?
A)A call option on the company's stock.
B)A put option on securities sold to finance the project.
C)An option to expand the scale of the project.
D)An option to purchase that will be used for the manufacturing facility.

Question

Quizplus · Accepted Answer

An option to expand the scale of the project is a real option because it gives the company the right, but not the obligation, to increase the size of the project if market conditions or other factors are favorable. A call option on the company's stock and a put option on securities sold to finance the project are financial options and not relevant to capital budgeting decisions. An option to purchase a manufacturing facility may be relevant but there is not enough information to determine if it is a real option.

Which of the Following Is a Real Option with Respect