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In addition to traditional financial criteria such as NPV, IRR and Payback period, real options theory from finance is finding use in multiple project evaluation and selection. Projects may differ in terms of possible options for project growth, deferment, stage, scale, switching, and abandonment, among others. Which situation below would be the most appropriate for applying options criteria to select between competing projects in the evaluation process?
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Choosing between two competing projects with similar NPVs and different cash inflow uncertainty |
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Choosing between two competing projects with similar NPVs and similar cash inflow uncertainty |
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Choosing between two competing projects with widely different NPVs (net present value estimates) |
Given an expected project completion time of 26 weeks and a project variance of 9 weeks, what is the approximate probability of completing the project within 20 weeks (Tc)? Pick the closest answer from provided options.
Normal distribution table is available on BB/Course Documents or can be computed using Excel
Z=(Tc – Te)/Project std deviation, where Tc = desired project completion time; Te = expected project completion time;
Std deviation = Sq root of Variance
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0.2200 |
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0.0228 |
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0.0255 |
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0.7611 |
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