A Firm Creates Value By

question 6

Multiple Choice

A firm creates value by:

• A)having a greater cash inflow from its stockholders than its outflow to them.
• B)paying more cash to its creditors and stockholders than the amount it received from them.
• C)borrowing long-term debt.
• D)generating sales whether or not payment is received for all of those sales.
• E)purchasing assets that create cash inflows equal to the cost of those assets.

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Definitions:

Strike Price

The fixed price that allows the possessor of an option to either acquire (with a call option) or dispose of (with a put option) the base asset.

Put Option

A financial contract giving the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Market Price

The present cost at which a product or service is available for purchase or sale in the market.

Strike Price

This is the agreed-upon price within an option contract at which the underlying asset can be bought or sold before the option expires.