Which of the Following Statements Is False

question 16

Multiple Choice

Which of the following statements is false?

• A) Abandonment options can add value to a project because a firm can drop a project if it turns out to be unsuccessful.
• B) Corporate bonds often contain embedded abandonment options; the issuing firm sometimes has the option to convert the bond - that is, to repay it.
• C) An abandonment option is the option to walk away.
• D) An important abandonment option that most people encounter at some point in their lives is the option to abandon their mortgage.

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Definitions:

MB < MC

A condition where the marginal benefit of producing an additional unit is less than the marginal cost of producing that unit.

Decision Maker

An individual or group responsible for making choices or judgments, particularly in a professional or organizational context.

Total Profit Maximization

The process or strategy of adjusting production and sales to achieve the highest possible profit.

Marginal Benefit

The additional satisfaction or utility received from consuming one more unit of a good or service.