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Exam 15: Investment,time and Capital Markets

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Question 41

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Which is the best example of a nondiversifiable risk for Stalwart Shoes?

A) A project to open a new store in Texas
B) A project to open a new factory in Texas
C) A project to move into the sock market
D) The state of the economy in Texas
E) The state of the U.S.economy

F) A) and C)
G) A) and E)

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Question 42

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If we start to think that Medicare will pay for all of our medical needs as we age,then our likely actions will lead to:

A) a shift in the supply of loanable funds will cause interest rates to rise.
B) a shift in the supply of loanable funds will cause interest rates to fall.
C) a shift in the demand for loanable funds will cause interest rates to rise.
D) a shift in the demand for loanable funds will cause interest rates to fall.
E) there will be an excess supply of loanable funds.

F) A) and E)
G) A) and B)

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Question 43

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The "Capital Asset Pricing Model" measures the risk premium for a capital investment by comparing the expected return on that investment with the

If the inflation rate falls and nominal interest rates are unchanged,

If a project's only risk is diversifiable,

The marginal revenue product of capital inputs does not provide complete information about optimal use because capital is:

Mitchell operates a diner in Pleasantville.Currently,the diner is not certified by the Pleasantville Restaurant Club.To get the diner certified,Mitchell would need to spend $20,000.Once certified,Mitchell expects to receive $5,000 in additional profits every year for perpetuity beginning 1 year from certification.What must Mitchell's discount rate be if he gets certified by the restaurant club?

A perpetual payment of $10,000,offered for sale at $125,000,is being offered at an effective yield of

Two bonds of equal risk are for sale on the secondary bond market.The two bonds have the same face value,and both mature in 10 years.Bond A pays $10 per year and bond B pay $15 per year.Which bond will sell for a higher price?

Which of the following questions is addressed when hiring capital,but not addressed when hiring labor?

Thompson Industries produces packaging materials.Thompson is considering undertaking one or both of two investment projects.The first investment involves a new automated warehouse for the firm's foam and plastic inventory.The warehouse can be expected to have a useful life of ten years,after which it will be obsolete with no scrap value.The warehouse involves $3,000,000 in capital cost that must be paid immediately.The warehouse will lower the firm's cost $400,000 for each of the first five years,and $500,000 per year thereafter.The second project involves the acquisition of a computerized order system that would allow the firm's salespeople to link directly with the computer to place orders.The computerized network will require an initial capital cost of $1,000,000,but will save the firm $300,000 per year in support staff costs.Thompson's managers believe that the order system will be obsolete after five years.Cash flows for each project will be at year end.Thompson uses a 10% discount rate in evaluating the investment projects.interest rates and future cash flows are in real terms,net of all tax effects. a.Calculate the net present value of each investment project.Which project(s)should the firm accept? b.Comment on the impact of a change in the discount rate on the NPV.(Analyze both an increase and a decrease in the NPV.)

Relative to a perfectly competitive market for an exhaustible resource,the monopolist charges a __________ price and uses the resource more __________.

The decision firms make about new capital projects is most like the decision consumers make when they decide

Another name for diversifiable risk is

The higher the beta,

The asset beta in the Capital Asset Pricing Model is a moderate number that measures

Of the following endeavors of Happy Home Insurance Company of California,which involves the most nondiversifiable risk?

Interest rates are determined by the supply and demand for

Suppose that many consumers tend to over-state the discount rate that should be used for computing the net present value of education,just as they do when making investments in durable goods like cars and appliances.What would happen if consumers (as a group) started to use lower discount rates when making decisions about their education?

Knowledge,skills,and experience that make an individual more productive and able to earn a higher income are known as: