Which of the Following Statements Is False

question 3

Multiple Choice

Which of the following statements is false?

• A) Because real options allow a decision maker to choose the most attractive alternative after new information has been learned, the presence of real options adds value to an investment opportunity.
• B) To make an investment decision correctly, the value of embedded real options must be included in the decision-making process.
• C) A key distinction between a real option and a financial option is that real options, and the underlying assets on which they are based, are often traded in competitive markets.
• D) We can compute the value of the real option by comparing the expected profit without the real option to the value with the option.

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Definitions:

Economic Profit

The discrepancy between overall earnings and the aggregate of explicit and implicit expenditures.

Dynamic Change

Dynamic change refers to the continuous and possibly unpredictable changes in conditions, situations, or systems over time.

X-Inefficiency

Occurs when a firm operates at higher costs than necessary, often due to lack of competitive pressure or managerial inefficiency.

Usury Law

A legal regulation that limits the maximum interest rate that can be charged on loans, designed to protect consumers from exorbitant rates.