Which of the following statements is true concerning a project with embedded options?
Traditional NPV analysis may understate the value of a project that has embedded options.
Disregarding embedded options is fine provided that a project's NPV is positive.
Embedded options may change both the cash flows and risk associated with a project.
A. I only
B. I and II only
C. I and III only
D. I, II, and III
You have just completed a capital investment analysis and have determined the expected profitability index (PI) to be 1.34. What is the meaning of an expected PI of 1.34?
A. The project will achieve a payback of the initial investment in 1.34 years.
B. The project is expected to have an annual return on investment of 134 %.
C. The project is 1.34 times more expensive than its net present value.
D. The project is expected to create $1.34 of pressent value per investment dollar.