Why is risk-adjusted NPV important in option evaluation?

Risk-adjusted NPV (Net Present Value) is crucial in option evaluation because it provides a more accurate reflection of the potential return on an investment by accounting for the risks associated with it. This method integrates the likelihood of uncertain future events affecting cash flows, allowing decision-makers to assess the viability of different investment options more effectively.

By adjusting the NPV calculation for the probabilities of different risks and outcomes, decision-makers can prioritize options that not only have the potential for high returns but also fit within their risk tolerance. This ultimately helps organizations identify the most promising investments that align with their strategic goals while mitigating potential downsides.

The other options, while related to project analysis and management practices, do not capture the essence of why risk-adjusted NPV is particularly valuable in evaluating the viability of investment options. Minimizing costs, maximizing stakeholder involvement, and reducing complexity are important considerations in project management but do not directly address the core function of risk assessment in investment decision-making.