18 Questions
What is a key characteristic of the real option approach in investment decision-making?
Active interference of management
What is a key benefit of incorporating real options in investment projects?
Generating higher shareholder value
What type of real option can be executed exactly at the expiry date?
European option
What is an example of a real option in the context of production?
Unused capacity of machines
What is a key feature of a real option that generates value?
Considering future volatility
What is a key characteristic of real options in the context of investment decision-making?
Tied with the choice and the decision maker
What is the primary reason why the time value of a real option increases as the time to expiry date increases?
The situation is more likely to change for the better
What is the total value of a real option comprised of?
The sum of the internal and time value of the option
In the example of the pharmaceutical company, what was the value of the option to alter the operating scale of the project?
9,9 M CZK
What type of option is the option to stage the project in the example of the pharmaceutical company?
Compound option call on call
What was the NPV of the project without the inclusion of the real option in the example of the pharmaceutical company?
17,9 M CZK
What is the purpose of conducting real options analysis in a project?
To identify the different options available in the project
What is a characteristic of the Stochastic binomial model?
It is applicable for both European and American options
Under what conditions is it worth considering real options?
When the NPV of the project fluctuates around zero or is slightly below zero
What is the effect of increasing volatility on the internal value of a real option?
It increases the internal value
What is an assumption of the Black-Scholes model?
There are perfect markets
What is the relationship between the rate of return of an asset and the risk-free rate in the context of real options?
The rate of return of an asset is equal to the risk-free rate
What is a characteristic of the internal value of a real option?
It cannot be negative
Learn about the role of real options in improving investment decision-making, including how they assess company flexibility and generate positive value-creation. Discover how real options work and their impact on the investment process. Understand the concept of options and their relation to decision-making.
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