DCF analysis doesn’t always lead to proper capital budgeting decisions because capital budgeting projects are not investments like stocks and bonds. Managers can often take positive actions after the investment has been made to alter a project’s cash flows. These opportunities are real options that offer the right but not the obligation to take some future action. Types of real options include growth (expansion), abandonment, investment timing, and flexibility (inputs/output). The existence of options can expected profitability, their calculated NPVs, and their risk.
a. Active/ Passive/ Real
b. Decrease/ Increase/ Neutralize
c. Decrease/ Increase/ Neutralize
d. Decrease/ Increase/ Neutralize
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