Which of the following represent limitations of real options?
A. Key assumptions often are very difficult to quantify, especially volatility
B. Project delays may incur significant opportunity costs
C. Options often are not independent; therefore, selecting one option may foreclose other options
D. Often requires complex modeling
E. All of the above
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Which of the following is not true about real options?
All investment decisions contain identifiable and measurable real options.
B. Under certain circumstances, management may be able to delay their initial investment in a project or M&A.
C. Real options may be valued as the expected value of various alternative cash flow projections.
D. Real options can be valued using the Black-Sholes method.
E. None of the above
Which one of the following is not a commonly used method of valuing target firms?
A. Discounted cash flow
B. Comparable companies method
C. Recent transactions method
D. Asset oriented method
E. Share exchange ratio method
Which of the following represent options available to managers in making investment decisions?
A. Delay initial investment
B. Accelerate cumulative investment
C. Abandon the investment at a later date
D. A & B only
E. A, B, & C
Limitations in applying the comparable companies’ method of valuation include which of the following?
A. Finding truly comparable companies is difficult
B. The use of market-based methods can result in significant under- or overvaluation during periods of declining or rising stock markets
C. Market-based methods can be manipulated easily, because the methods do not require a clear statement of assumptions with respect to risk, growth, or the timing or magnitude of future earnings and cash flows.
D. A, B, & C
E. A & B only
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