One of the Pitfalls of Real Options Analysis Is That

question 88

Multiple Choice

One of the pitfalls of real options analysis is that managers may have an incentive and know-how to game the system and back-solve a formula to get a proposal approved.This can give rise to

• A) managerial conceit.
• B) the illusion of control.
• C) escalation of commitment.
• D) agency problems.

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Definitions:

Bonds Payable

A long-term liability account on a company’s balance sheet that represents the amount owed to bondholders by the issuer, to be repaid at a future date.

Unamortized Premium

Unamortized Premium is the portion of the bond premium that has not yet been expensed and is allocated over the remaining life of the bond as an adjustment to interest expense.

Consolidated Gain or Loss

The combined profit or loss of a parent company and its subsidiaries, reported in the consolidated financial statements.