Clemens Inc. is considering a $100 million investment in a new line of soft drinks. However, $100 million is a huge investment for Clemens; if things turn bad, it could wipe out the company. A few senior managers have suggested a smaller investment of $20 million to see if the market is as strong as they hope it is. If demand is strong and the opportunity is still available, Clemens will increase its investment at a later date. This example describes a real option to

Question

Business

Misael Boyle

24 March, 17:07

Clemens Inc. is considering a $100 million investment in a new line of soft drinks. However, $100 million is a huge investment for Clemens; if things turn bad, it could wipe out the company. A few senior managers have suggested a smaller investment of $20 million to see if the market is as strong as they hope it is. If demand is strong and the opportunity is still available, Clemens will increase its investment at a later date. This example describes a real option to

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Answers (1)

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Jaylan · Answer 1

Expand

Explanation:

Since future market demand is not ceratin so company use to invest portion of fund to determine demand of product and opportunity in market. if they find that there is demand and opportunity in market then they invest large amount.

This process is called real option to Expand the business.

Hence, option (expand) is correct answer.