A firm's optimal capital budget consists of all potential independent projects that have positive NPVs when evaluated at the projects' own risk-adjusted costs of capital, plus those mutually exclusive projects with the highest positive NPVs. True or false?
Sometimes a cost must be incurred to obtain an abandonment option. This cost should be incurred if and only if the value of the option exceeds its cost. The value of an abandonment option can be estimated by first calculating the value of the project considering the possibility of abandonment, then subtracting the value of the project if it could not be abandoned. The difference in values is the value of the abandonment option. True or false?
An opportunity to expand if a project is successful is an example of a real option. This particular type of option is called an expansion option. True or false?