ECM002 Business Economics Instructions: Please answer four out of the following six following questions: Question 1. Suppose Cola- Sol and Miniranda are the only two companies producing a particular type of cola drink in the soft drink industry. Both companies are considering launching a new drink with a light lemon twist. They can launch their products either at a low price or at a high price. The expected net payoffs are the following: If both companies choose a high price strategy‚ Cola-
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CHAPTER 27 MULTINATIONAL FINANCIAL MANAGEMENT Please see the preface for information on the AACSB letter indicators (F‚ M‚ etc.) on the subject lines. True/False Easy: (27.3) Multinational financial management FT Answer: a EASY 1. Multinational financial management requires that financial analysts consider the effects of changing currency values. a. True b. False (27.3) Multinational financial management FT Answer: b EASY 2. Legal and economic differences among countries‚ although
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standard. Answer: The adjustment mechanism under the gold standard is referred to as the price-specie-flow mechanism expounded by David Hume. Under the gold standard‚ a balance of payment disequilibrium will be corrected by a counter-flow of gold. Suppose that the US imports more from the UK than it exports to the latter. Under the classical gold standard gold is the only means to settle international payments. Since in our example the US owes money to the UK gold must flow from the U.S. to the UK
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socially efficient (competitive) levels? What is the magnitude of the deadweight loss caused by monopoly pricing? 4. Show that if a firm is a natural monopoly‚ a government policy that forces marginal cost pricing will result in losses for the firm. 5. Suppose a change in technology available to fringe firms increases their elasticity of supply‚ altering the total fringe supply curve from p = 5 + Q‚ to p = 5 + 2Q. If market demand is Q = 20 – p‚ show the change in the residual demand curve using a graph
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describes the percentage change in 14) Suppose that when your wealth increases from $100‚000 to $200‚000‚ your holdings of savings deposits increase from $10‚000 to $12‚000. Your wealth elasticity of demand for savings deposits then is 15) Suppose that when your wealth increases from $100‚000 to $200‚000‚ your holdings of stock mutual funds increases from $20‚000 to $50‚000. Your wealth elasticity of demand for stock mutual funds then is 16) Suppose that when your wealth increases from $100
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Question: 1.Suppose the rate of return on short-term government securities (perceived to be risk-free) is 5%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 12%. According to the CAPM: a) What is the expected rate of return on the market portfolio? b) What would be the expected rate of return on a stock with β = 0? c) Suppose you consider buying a stock which does not pay a dividend. The current price is $50‚ and in one year
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income is [pic]. 1) What is the demand function for clothing? 2) Is clothing a normal good in this case? 3. (25 points) Suppose that Natasha’s utility function is given by u(I) = I0.5‚ where I represents annual income in thousands of dollars. 1) Is Natasha risk loving‚ risk neutral‚ or risk averse? Explain. 2) Suppose that Natasha is currently earning an income of $10‚000 (I = 10) and can earn that income next year with certainty. She is offered a chance to take
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Question 3 (10 points) Suppose the expected returns on equity of two firms‚ Macrosoft and Microsoft‚ that operate in the same industry are 10.50% and 12.60%‚ respectively. What is the return on assets in this business if Macrosoft has no debt? (Enter the answer with no more nor less than two decimal places‚ and leave off the % sign. For example‚ if your answer is 13.97% you should enter it as 13.97 NOT 0.14 nor 14) Answer for Question 3 Question 4 (10 points) Suppose CAPM holds‚ and the beta
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INTRODUCTION TO CAPITAL BUDGETING Overview 159 7.1 The NPV Rule for Judging Investments and Projects 159 7.2 The IRR Rule for Judging Investments 161 7.3 NPV or IRR‚ Which to Use? 162 7.4 The “Yes–No” Criterion: When Do IRR and NPV Give the Same Answer? 163 7.5 Do NPV and IRR Produce the Same Project Rankings? 164 7.6 Capital Budgeting Principle: Ignore Sunk Costs and Consider Only Marginal Cash Flows 168 7.7 Capital Budgeting Principle: Don’t Forget the Effects of Taxes—Sally and Dave’s
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I. Practice w/ Type I & Type II errors and Power is true is not true Reject Do Not Reject Identify a Type I error ( a false alarm) Identify a Type II error (missing a detection) P(Type I error) = P(Type II error) = Power of the test = 1- Recognize the consequences of a Type I or Type II error II. Multiple Choice. Identifying Type I and Type II errors. 1. An advertisement claims HairBuilder
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