Describe the real option approach to risk-adjusted capital budgeting. What will be an ideal response? ANSWER Real options involve the contractional ability to make changes in capital projects, particularly once they are underway. Such options involve the ability to alter outputs (expand, contract, shutdown), alter inputs (both input types and processes using them), and […]
A firm that buys goods that it would normally produce internally from an international company is using A) transfer pricing. B) insourcing. C) international outsourcing. D) domestic outsourcing. ANSWER C
What are the ways a multinational corporation can reposition its funds to increase its profits? What will be an ideal response? ANSWER Transfer pricing to take advantage of differences in tax rates among countries; royalty payments, license fees and dividends to transfer funds to other more profitable entities while avoiding income taxes or to […]
The Widget Company has estimated the following revenue possibilities for the year: Sales Probability 100 0.15 150 0.20 220 0.30 290 0.20 310 0.15 a. Find expected revenue. b. Find the standard deviation. c. Find the coefficient of variation. ANSWER a. Expected revenue is $215.50. b. Standard deviation = 72.90 c. Coefficient of variation […]
Which of the following is not considered a rationale for the intervention of government in the market process in the United States? A) the redistribution of income B) the reallocation of resources C) the long-run planning of scarce resources D) the short-run stabilization of prices E) All of the above ANSWER C
Savings accounts pay very low rates of interest. The average return on the stock market is about 10-12%, in the long run. Why would anyone put money into a savings account? What will be an ideal response? ANSWER The stock market gives a higher return for higher risk. Particularly if you are very averse […]
If an Albanian company hires a U.S.-based law firm, it is A) insourcing, from a U.S.-perspective. B) using domestic outsourcing. C) changing into a multinational enterprise. D) vertically integrating. ANSWER A
Which of the following is the best example of a product or service that provides a benefit externality? A) the construction of a private road that allows vehicles if a toll is paid B) a public library C) a bookstore that is open to everyone D) All of the above E) None of the above […]
All firms in a competitive industry have the following long-run total cost curve: C(q) = q3 10q2 + 36q where q is the output of the firm. a. Compute the long run equilibrium price. What does the long-run supply curve look like if this is a constant cost industry? Explain. b. Suppose the market […]
A two-period project has the following probabilities and cash flows: Probability Cash flow Period 1: .25 500 .50 600 .25 700 Period 2: .30 300 .50 500 .20 700 The discount rate is 7%, and the initial investment is $1,000. How much is the expected NPV of this project? ANSWER ($20.00)
