Which one of the following is NOT a real option? The option to buy shares of stock if its price is expected to increase. The option to switch the type of fuel used in an industrial furnace to lower the cost of production. The option to expand into a new geographic region. The option to expand production if the product is successful. The option to abandon a project if cash flows turn out to be lower than expected.

Question

Business

Blaise

15 June, 11:44

Which one of the following is NOT a real option? The option to buy shares of stock if its price is expected to increase. The option to switch the type of fuel used in an industrial furnace to lower the cost of production. The option to expand into a new geographic region. The option to expand production if the product is successful. The option to abandon a project if cash flows turn out to be lower than expected.

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Answers (1)

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Gilbert Merritt · Answer 1

The answer is: The option to buy shares of stock if its price is expected to increase.

Explanation:

A "real option" in management is: a choice managers can take concerning business investment opportunities. Real options usually involve tangible assets (machinery, buildings, inventory, land, etc.) but not financial instruments or stocks.

So the buying or selling of stocks aren't considered real options in business management.