Exam 6: Flexibility and Real Options

Why does present value analysis not work under conditions of uncertainty?

The option to abandon is a type of flexibility.

In most countries,contract and temporary employees are much more expensive to lay off than full-time employees.

Strategic options exist when firms have the obligation but not the ability to invest in a particular strategy.

When real options are path dependent,they are not likely to be a source of competitive advantage for a firm.

The higher the ________ interest rate,the greater is the value of a real option.

What is strategic flexibility? Why is it thought of as a third generic business level strategy?

The riskiest cash flows receive the ________ discount rates.

The future value of the cash flows generated by choosing and implementing a particular strategy is equal to the sum of those cash flows,discounted by how risky they are.

When technical uncertainty is low and market uncertainty is high,Rita McGrath and Ian MacMillan suggest a ________ option.

Strategic flexibility is most likely to be valuable under conditions of uncertainty.

According to Rita McGrath and Ian MacMillan,________ uncertainty refers to the extent to which managers understand the process by which a new product or service will be developed before that process is undertaken.

The longer the time to ________,the greater is the value of a real option.

Avoiding fixing on a particular design or set of features early,failing fast,failing cheap,learning fast,and trying again is what is meant by a ________ option.

While present value approaches do a wonderful job of incorporating risk into strategic decision making,they cannot be applied under conditions of uncertainty.

The greater the uncertainty,the less valuable is the real option.

Real options are all about the flexibility afforded a firm under conditions of ________.

The downside risk of a real option is fixed.

According to Rita McGrath and Ian MacMillan,there are ________ real options for a company to consider under technical and market uncertainty.