The managers of Virginia Hydroponics Co. have included an investment timing option into the design of a proposed capital investment project: I. This option allows a firm to temporarily terminate operations in order to prevent experiencing negative cash flows
II. This option allows a firm to shut down a project if its cash flows are lower than expected.
III. This option provides a firm with the flexibility to make potentially profitable investments in the future that would not have been possible if the initial project had not been undertaken.
IV. This option allows a firm to postpone a project until it can gather more information or market conditions change.
Which of the listed statement best describes a shutdown option?
a. Statement II
b. Statement I
c. Statement III
d. Statement IV
e. None of the statements listed above describes a shutdown option.