Why is managerial flexibility important in capital budgeting?

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Why is managerial flexibility important in capital budgeting?




Answer: Some projects may take in added value because they give the firm the option to bail out if things go wrong or to capitalize on success by expanding. These options are known as REAL OPTIONS, which include options to expand, abandon, delay investment, or make use of flexible production facilities. We showed how DECISION TREES may be used to set out the possible choices.

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