Traditional NPV analysis often estimates the value of a pro

Traditional NPV analysis often __________ estimates the value of a project because it ignores real options such as the ability to expand the project if it is profitable, or abandon the project if it is unprofitable. B. under A. over D. none of the above C. accurately

Solution

Answer is Option (B). Under estimate.

Because, traditional NPV analysis can not incorporate the facts that decisions can bechanged and adjustments made, even after the project has been accepted. But in case if the Firm can make the adjustment in the current project then this can result higher NPV.