Posted: December 8th, 2016

An opportunity to implement cost savings or revenue expansion in a flexible business plan.

A Real Option Value is: Answer

An option that been deflated by the cost of living index makes it a “real” option.

An opportunity cost of capital.

An opportunity to implement cost savings or revenue expansion in a flexible business plan.

An objective function and a decision rule that comes from it.

The Saturn Corporation (once a division of GM) was permanently closed in 2009. What went wrong with Saturn? Answer

Saturn’s cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars.

Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.

Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM.

Saturn implemented a change management view that helped make first time Saturn purchasers trade up to Buick or Cadillac. The form of economics most relevant to managerial decision-making within the firm is: Answer

macroeconomics

welfare economics

free-enterprise economics

microeconomics Recently, the American Medical Association changed its recommendations on the frequency of pap-smear exams for women. The new frequency recommendation was designed to address the family histories of the patients. The optimal frequency should be where the marginal benefit of an additional pap-test: Answer

equals zero.

is greater than the marginal cost of the test

is lower than the marginal cost of an additional test

equals the marginal cost of the test

Income tax payments are an example of ____. Answer

implicit costs

explicit costs

normal return on investment

shareholder wealth Which of the following will increase (V0), the shareholder wealth maximization model of the firm: V0∙(shares outstanding) = Σ∞t=1 (π t ) / (1+ke)t + Real Option Value. Answer

Decrease the required rate of return (ke).

Decrease the stream of profits (πt).

Decrease the number of periods from ∞ to 10 periods.

Decrease the real option value. The ____ is the ratio of ____ to the ____. Answer

standard deviation; covariance; expected value

coefficient of variation; expected value; standard deviation

correlation coefficient; standard deviation; expected value

coefficient of variation; standard deviation; expected value The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution) Answer

68.26%

2.28%

34%

15.87% The level of an economic activity should be increased to the point where the ____ is zero. Answer

marginal cost

average cost

net marginal cost

net marginal benef uestion 10

The standard deviation is appropriate to compare the risk between two investments only if Answer

the expected returns from the investments are approximately equal

the investments have similar life spans

objective estimates of each possible outcome is available

the coefficient of variation is equal to 1.0 Question 11

Based on risk-return tradeoffs observable in the financial marketplace, which of the following securities would you expect to offer higher expected returns than corporate bonds? Answer

U.S. Government bonds

municipal bonds

common stock

commercial paper Question 12