Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 26, Problem 3Q
Summary Introduction
To determine: The reason that timing options will be likely to be accepted today.
Introduction: The investment timing options is the option by which company does not need to implement the investment immediately rather this option provides an opportunity to wait before investment implementation after acknowledging the market uncertainties.
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In general, do timing options make it more or less likely that a project willbe accepted today?
Should the project be accepted or rejected?
Why does a project not merit consideration unless its payback period is shorter than some special period of time?
Chapter 26 Solutions
Financial Management: Theory & Practice
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Similar questions
- Would you expect an abandonment option to increase or decrease a project’sexpected NPV and risk (as measured by the coefficient of variation)? Explain.arrow_forwardWhy might recognizing the existence of a real option raise, but not lower, a project’sNPV as found in the traditional manner?arrow_forwardCan time series be an effective forecasting tool? Identify two of the most common mistakes made in completing a time series forecast and share an example of each mistake.arrow_forward
- How does the higher project risk reflect a higher anticipated variability in a project's NPW?arrow_forwardWill the payback period, NPV, and IRR always lead to the same decision? Why or why not? If not, which one should be used?arrow_forwardIf a company has an option to abandon a project, would this tend to make the company more or less likely to accept the project today?arrow_forward
- Below are some statements about risk and investment appraisal. Which one is incorrect? A. Risk-adjusted hurdle rates could be used to allow for the risk of a project B. Risk could be allowed for in a project by shortening the pay-back period C. While sensitivity analysis does not directly imbed risk in the appraisal process it is helpful for identifying "key" variables D. Risk decreases with the length of a project E. Probability analysis can be used to allow for the risk of different economic conditionsarrow_forwardinvestment decisions does not have to be taken during various pre-investment stages. is it True or False?arrow_forwardIf a company has an option to abandon a project, would this tend to makethe company more or less likely to accept the project today?arrow_forward
- Do maturity models neglect ambiguities and uncertainties of projects or do they do just the opposite?arrow_forwardIf a firm cannot measure a potential project’s risk with precision, should it abandonthe project? Explain your answer.arrow_forwardeathree o qucu oesi? of e tos What does the beta of the project represent and how will higher project betas affect your decision? vatarrow_forward
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