Which of the following statements is FALSE?[Fill in the blank]

Question

BlackTom AI · Accepted Answer

Growth options are analogous to call options because they give the firm the right (but not the obligation) to make a profitable future investment by paying the required cost. Real options are project-based decisions with option-like payoffs.

1) Relevant knowledge points and concepts
- Real option: a managerial right, not an obligation, to take an action (invest, abandon, expand, defer) in the future; it has option value.
- Investment timing option: the right to delay an investment until more information arrives — a classic real option (similar to an American call).
- Call option payoff: max(S − K, 0) where S is project value (present value of cash flows) and K is investment cost.
- Put option payoff: max(K − S, 0) — right to sell an asset; different economic intuition.

2) Step-by-step reasoning
- Future growth opportunities let a firm choose to invest in projects later if they become attractive. That is the right to “buy” future projects by paying investment cost K when project value S is favorable.
- This payoff when exercised is S − K if S > K and 0 otherwise, identical to a call payoff: max(S − K, 0).
- A put (max(K − S, 0)) would pay when project value is low, which does not describe a growth opportunity.

3) Calculation / intermediate steps (illustrative)
- Suppose PV of future project S = 120 and required investment K = 100.
- Exercising yields payoff = S − K = 120 − 100 = 20 = max(120 − 100, 0). This matches a call.
- Put payoff = max(100 − 120, 0) = 0, which is not the growth option payoff.

4) Why the correct answer is correct
- Statement b claims growth opportunities are “real put options.” That is incorrect: they are like call options because the firm has the right to invest (buy the project) when value exceeds cost. Thus b is the false statement.

5) Why the other options are correct/incorrect briefly
- a: True — an investment timing option is a real option. 
- c: True — growth options add value because they provide upside without mandatory downside.
- d: True — embedding option value affects correct investment choices.

Conclusion: Statement b is false, so the correct choice is b, matching the provided answer.

Which of the following statements is FALSE?[Fill in the blank]Single choice

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