Capacity option
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
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
