The Delta of a Call Option on a Firm's Assets

question 7

Multiple Choice

The delta of a call option on a firm's assets is .624. How much will a project valued at $48,000 increase the value of equity?

• A) $18,048
• B) $45,336
• C) $29,952
• D) $76,923
• E) $32,189

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Definitions:

Accounting Profits

The financial gain calculated by subtracting total explicit costs from total revenues, using generally accepted accounting principles.

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from total revenues; also known as supernormal profits.

Implicit Costs

Costs that represent the opportunity costs of using resources owned by the firm for its own production rather than selling those resources.

Economic Profit

The difference between total revenue and the total cost of inputs (including opportunity costs), reflecting the additional gain from business operations beyond breaking even.