Which of the Following Statements Is False

question 2

Multiple Choice

Which of the following statements is false?

• A) Often, the decision to abandon a project entails costs, which may be either positive or negative.
• B) Mortgage interest rates are higher than Treasury rates because mortgages have an abandonment option that Treasuries do not have: You can prepay your mortgage at any time, while the U.S. government can repay its debt only according to the schedule outlined in the bond contract.
• C) A popular option gives holders of the bond the option to convert the bond into equity. These kinds of bonds are termed callable bonds.
• D) More often than not, there is an opportunity cost of abandoning a project: If you shut down the project and later decide to start it up again, you have to pay the costs of restarting the project.

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Definitions:

Debt-To-Equity Ratio

It's a financial indicator that compares the proportions of debt and shareholders' equity in funding company assets.

Total Assets

The aggregate of current and fixed assets held by a corporation.

Total Liabilities

The total amount of financial obligations or debts that a company owes to external parties.

Return On Equity

A financial ratio that measures the profitability of a company in relation to the shareholders' equity, indicating how efficiently a company uses its equity to generate profit.