Purchase Solution

Real options / WACC / Manufacturing plants abroad

Not what you're looking for?

Ask Custom Question

Companies often have to increase their initial investment costs to obtain real options. Why might this be so, and how could a firm decide it was worth the cost to obtain a given real option?

How might a firm's corporate WACC be affected by the size of its capital budget?
Why do US corporations build manufacturing plants abroad when they can build them at home?

Purchase this Solution

Solution Summary

The solution explains real options, the impact on WACC of capital budget and why companies build manufacturing plants abroad

Solution Preview

1. Real options imply that the firm gets the ability to change the outcome of the capital budgets even after the project has been started. The firm would get the option to either abandon the project later on or to change the scope of the project. When the firm starts the project, it would enter into agreements with various suppliers for the inputs to the project. In order to get the real options, the risks of the suppliers increase since the project may be abandoned later on or changed and the suppliers would have done their own investments based on the project. Thus the firm may need to compensate the ...

Purchase this Solution


Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Operations Management

This quiz tests a student's knowledge about Operations Management

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.