Homework Chapter 12 - Cash Flow Estimation and Risk Analysis 7. Introduction to real options Consider the following statement about real options: Certain real options allow companies to change capacity output in response to changing market conditions. True or False: The preceding statement is correct. True False Which type of real option allows a project to be expanded If demand turns out to be greater than expected? Timing option Expansion option Flexibility option Abandonment option Consider the following example: Clemens Inc. is considering a $100 million investment in a new line of soft drinks. However, $100 million is a huge Investment for Clemens; ir things turn bad, it could wipe out the company. A few senior managers have suggested a smaller Investment of $20 million to see if the market is as strong as they hope it is. If demand is strong and the opportunity is still available, Clemens will increase its investment at a later date This example describes a real option to Grade It Now Save & Continue