Question

Smoltz Motors has plants around the country that specialize in specific models of cars. Smoltz has determined that lower demand has led the firm’s inventory of SUVs to be too high. Smoltz wants to stop production for its SUVs and focus on its sedans.

This example describes a real option to ______ .

Answer 1

The correct answer is: abandonment option.

Step-by-step explanation:

An abandonment option comes into place when a company withdraws from an obligation because it is not being profitable anymore. It is a clause that allows one party in a given contract to stop being part of it before the term initially established is fulfilled.