The following are examples of "disguised options":
I.acquiring growth opportunities;
II.ability of the firm to terminate a project when it is no longer profitable;
III.covenants within corporate securities that provide flexibility to change the terms of the securities
A)I only
B)II only
C)I and III only
D)I, II, and III

Question

Quizplus · Accepted Answer

I. Acquiring growth opportunities is a disguised option because the firm has the choice to invest in profitable opportunities that may not have been anticipated when making initial investment decisions.
II. The ability of the firm to terminate a project when it is no longer profitable is also a disguised option because it allows for flexibility in investment decisions.
III. Covenants within corporate securities that provide flexibility to change the terms of the securities are also a form of disguised option as they offer flexibility in the face of changing market conditions. All three examples illustrate the concept of disguised options, making choice D the correct answer.

The Following Are Examples of "Disguised Options