True or False: A real option embedded in a capital project gives the investing firm the right but not the obligation to buy, sell, or transfer an asset at a set price during a specified period of time.

The managers of Aberdeen Petroleum Refiners Corp. have included an investment timing option into the design of a proposed capital investment project:

	I. This option allows a firm to temporarily terminate operations in order to prevent experiencing negative cash flows
	II. This option allows a firm to shut down a project if its cash flows are lower than expected.
	III. This option provides a firm with the flexibility to make potentially profitable investments in the future that would not have been possible if the initial project had not been undertaken.
	IV. This option allows a firm to postpone a project until it can gather more information or market conditions change.

Which of the listed statements best describes an investment timing option? ^

Real option analysis adds value to a project when it is used for which of the following? Check all that apply.

Increasing the riskiness of the capital project and decreasing the projects cash flows

Making managers aware of the consequences of their decisions and actions on the creation or destruction of value for a capital project

Expanding the way that managers view risk and uncertainty, seeing them as phenomena to be appreciated and exploited rather than feared and avoided

Making managerial decision making less deliberate and analytical