Capacity option

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Capacity option is a financial option that allows a company to change the capacity of its output in response to changing market conditions. This includes the option to contract or expand production. It also includes the option to abandon a project if market conditions deteriorate too much.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Capacity option. Allows a company to change the capacity of its output in response to changing market conditions. This includes the option to contract or expand production. It also includes the option to abandon a project if market conditions deteriorate too much.

Related concepts

Related lectures