You Have Just Presented a Grim but Realistic Prediction of Your

question 22

Multiple Choice

You have just presented a grim but realistic prediction of your company's earnings for the next quarter to the board of directors. The chairman of the board is unhappy with your analysis and says, "This company has turned a profit for the past twenty years! How can you be so pessimistic about the next three months?" Which of the following is the best way to respond to his question?

• A) "Past success doesn't rule out future hardship."
• B) "You're right! Our estimates could be incorrect."
• C) "Do you have alternative data that paints a different picture?"
• D) "You're concerned about our accuracy. Our projections are based on…"
• E) "I'm the expert on this data, so I know I'm correct."

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Definitions:

American Put

An option contract giving the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price before or on a specified date.

Real Option

The choice available to managers regarding business investments, such as expanding, deferring, or abandoning a project, based on changing conditions.

Fixed Price

A pricing strategy where the cost of a good, service, or contract does not change, regardless of variations in market conditions or production costs.

Asset

Any resource owned or controlled by a business or an individual that is expected to produce positive economic value.