A managerial option, in effect:
Click on the arrows to vote for the correct answer
A. B. C. D.B
The acronym CTFA stands for "Contingent Total Future Action," which is a type of managerial option that allows a company to delay making a decision about a project until a future event occurs.
A CTFA is an option that a company may purchase to wait and see how a particular event unfolds before committing to a project. It essentially provides the company with the ability to delay its decision-making until a future date. For example, a company may purchase a CTFA option to wait and see how new regulations will affect its industry before deciding to move forward with a new project.
Now, let's go through the options provided and see which one best describes a CTFA:
A. Limits the flexibility of management's decision-making: This option is incorrect because a CTFA actually increases management's flexibility by providing them with the ability to delay their decision-making until a future event occurs.
B. Limits the downside risk of an investment project: This option is also incorrect because a CTFA doesn't limit the downside risk of an investment project, it simply delays the decision to invest until more information is available.
C. Limits the profit potential of a proposed project: This option is incorrect because a CTFA doesn't limit the profit potential of a proposed project. In fact, it can increase the potential profit by allowing management to make a more informed decision.
D. Applies only to new projects: This option is incorrect because a CTFA can be used for both new and existing projects. It simply provides a company with the option to delay its decision-making until a future event occurs.
Therefore, the correct answer is B.