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Unformatted text preview: ch23 Student: _______________________________________________________________________________________ Multiple Choice Questions 1. The option to abandon is: A. a real option. B. usually of little value because of the cost associated with abandonment. C. irrelevant in capital budgeting analysis. D. nearly always less relevant the option to expand. E. All of the above. 2. An example of a special option is: A. an executive stock options. B. the embedded option in a start-up company. C. the option in simple business contracts. D. the option to shut down and reopen a project. E. All of the above. 3. Executives can not exercise their options for a fixed period of time, this is the: A. investing period. B. freeze-out period. C. valuation period. D. guaranteed growth period. E. strike period. 4. The NPV approach must be: A. augmented by added analysis if there are a few embedded options. B. augmented by added analysis if a decision has significant embedded options. C. jettisoned if there are any embedded options. D. computed carefully to identify the options. E. None of the above. 5. Options are granted to top corporate executives because: A. executives will make better business decision in line with benefiting the shareholders. B. executive pay is at risk and linked to firm performance. C. options are tax-efficient and taxed only when they are exercised. D. All of the above. E. None of the above. 6. The call option on a dividend paying stock compared to a non-dividend paying stock is: A. more valuable because of the extra dividend payment. B. equal in value because cash dividends are paid on stock only. C. less valuable because cash dividends are paid on stock only. D. less valuable if the dividend paying stock is in-the-money while the non-dividend paying stock if out-of-the-money. E. None of the above. 7. The value of the options awarded executives is much less than face value to the executives because: A. the value to the executive depends on the stock price being greater than the exercise price. B. the options must be held beyond the freeze-out period. C. a highly undiversified portfolio can have a large drop in value with high variance stocks. D. All of the above. E. None of the above. 8. Corporations by rewarding executives with large option positions: A. cause the executives to hold highly undiversified portfolios. B. put the firm in a risky position to pay off the options. C. cause the value of the stock to fall because the options are theft. D. are really valueless because most options are never exercised. E. None of the above. 9. Investing in a negative NPV project today is a feasible choice if: A. there are future option alternatives. B. investing is sequentially limited....
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- Spring '11
- Options, Real options analysis, Mathematical finance