The Option to Abandon a Project Investing in Real Assets

question 31

Multiple Choice

The option to abandon a project investing in real assets can be considered to have a strike price equal to the:

• A)Historical cost of the asset
• B)Market value of the asset at abandonment
• C)Forgone revenues anticipated from the project
• D)Forgone interest on the bonds used to finance the real assets

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Definitions:

Aging of Accounts Receivable

A report or process that categorizes a company's accounts receivable according to the length of time an invoice has been outstanding.

Promissory Note

A written promise to pay a specified sum of money to a certain entity at a specified date or on demand.

Maturity Date

The date on which a financial obligation must be repaid in full.

Promissory Note

A financial instrument containing a written promise by one party to pay a definite sum of money to another party at a specified future date or on-demand.