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Please provide an explanation for the correct choice.

Which of the following is an example of a flexibility option?

A. A company has the option to invest in a project today or to wait a year.

B. A company has the option to back out of a project that turns out to be unproductive.

C. A company pays a higher cost today in order to be able to reconfigure the project's inputor outputs at a later date.

D. A company invests in a project today that may lead to enhanced technological improvements that allow it to expand into different markets at a later date.

E. A company is starting a project using metal alloys that bend easily.

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Solution Summary

This posting provides an explanation for the correct choice of an example of a flexibility option.

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ANS: C

Statements a, b, c, and d are all examples of different types of real options. A flexibility option permits the firm to ...

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