One of the Potential Special Problems with an Option to Abandon

question 42

Multiple Choice

One of the potential special problems with an option to abandon is that:

• A)it can cost the firm more than the original investment.
• B)competitors will try to buy the project at a reduced price.
• C)there may be restrictions in the foreign country where the project is located that prevent or complicate abandonment of the project.
• D)the parent may not want to abandon the project.

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Definitions:

Noncumulative Preferred Stock

This type of preferred stock does not entitle its holders to claims on dividends missed in the past if they were not declared in those years.

Common Stock

A form of corporate equity ownership, a type of security representing an ownership share in a corporation.

Dividends

A portion of a company's earnings distributed to shareholders as a reward for their investment.

Par Common Stock

The face value of common shares issued by a company, which is noted on the share certificate.