The use of real options in capital budgeting A) may raise the NPV of a capital project. B) makes the analysis of the project considerably easier. C) allows management to make decisions more quickly. D) eliminates the need for calculating the project’s risk adjusted discount rate. ANSWER A
Date: September 9th, 2020
Given the Production Function Q = 72X + 15X2 – X3, where Q = Output and X = Input a. What is the Marginal Product (MP) when X = 8? b. What is the Average Product (AP) when X = 6? c. At what value of X will Q be at its maximum? d. At […]
Date: September 9th, 2020
A firm engaging in rent seeking activity A) is breaking the law. B) is willing to spend up to the gain in producer surplus. C) is irrational. D) increases societal gain. ANSWER B
Date: September 9th, 2020
The use of sensitivity analysis will generally result in A) the calculation of a certainty equivalent NPV. B) the calculation of a best case, a base case and a worst case. C) the calculation of the coefficient of variation. D) the calculation of the probability of the maximum profit. ANSWER B
Date: September 9th, 2020
The optimal provision of a public good occurs when the sum of the marginal rate of substitution for all members of society equals 1, the marginal rate of transformation. What is the relationship between the marginal rates of substitution in the competitive market? Use this relationship to explain why too few public goods are provided […]
Date: September 9th, 2020
In evaluating the required rate of return for equity financing of a capital project, the Beta value is A) the expected rate of growth in a firm’s profits. B) the expected future value of a firm’s stock. C) the volatility in the rate of return on a firm’s stock compared with the volatility in the […]
Date: September 9th, 2020
If the price of capital is $24, the price of labor is $15, and the marginal product of capital is 16, the least costly combination of capital and labor requires that the marginal product of labor be ________. Fill in the blank(s) with correct word ANSWER MPcapital/ MPlabor = Price of capital/Price of Labor, […]
Date: September 9th, 2020
A drawback in using the payback approach to capital budgeting decisions is A) it doesn’t account for the time value of money. B) it ignores cash flows beyond the payback period. C) it doesn’t adjust for differences in the stream of cash flows. D) All of the above ANSWER D
Date: September 9th, 2020
If bad drivers can usually avoid being ticketed by the police, then insurance companies will A) use one’s driving record as a signal. B) use one’s driving record as a screening device. C) not be able to use one’s driving record as a screening device. D) request driving records directly from the police and not […]
Date: September 9th, 2020
Explain why the social demand curve for a public good is the vertical sum of the demand curves of each individual. What will be an ideal response? ANSWER A public good lacks rivalry, so many people can get pleasure from the same unit of output. Thus for each unit of public good, the total […]
Date: September 9th, 2020
