Describe the real option approach to risk-adjusted capital budgeting
What will be an ideal response?
Real options involve the contractional ability to make changes in capital projects, particularly once they are underway. Such options involve the ability to alter outputs (expand, contract, shutdown), alter inputs (both input types and processes using them), and postpone or abandon projects. These options give the holder the right, but not the obligation, to exercise them and usually require the holder to pay an extra amount for this privilege. To determine whether such options are worthwhile, one would calculate the difference in the expected net present values of the capital projects with and without the option and compare it to the cost of paying for the option.
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If a person's nominal income increases by 5% while the price level increases by 2%, then that person's real income
A. increases by 3%. B. decreases by 2%. C. decreases by 7%. D. increases by 5%.
Often single-owner proprietorships seem more profitable than they really are. The reason for this is that
A) they receive special tax benefits compared to corporations. B) they use different accounting procedures. C) they often fail to consider the opportunity cost of the labor provided by the owner. D) they are not allowed to deduct depreciation expense.
Capital is best considered as:
A) the natural environment. B) a factor of production that has been produced. C) financial assets. D) money.
What is the main determinant of the price elasticity of supply? Explain
Please provide the best answer for the statement.