finance 11

1. Economic rents are:                                                                                       A.Returns that are in excess of the opportunity cost of capital B. Returns that are equal to the opportunity cost of the capital C. Returns that are less than the opportunity cost of capital D. None of the above

Select one:

A

B

C

D

2. When the markets become competitive, economic rents:                                A. Increase B. Decrease C. Remain the same D. Tend to be zero

Select one:

A

B

C

D

3. One way to uncover forecasting errors in NPV estimates is by looking at:    I) Book values II) Liquidating values III) Market values 

A. I only B. II only C. III only D. I and II only

Select one:

A

B

C

D

4. The following are some of the competitive advantages that can last longer:  I) patents II) brand names III) economies of scale 

A. I only B. II only C. I and II only D. I, II and III

Select one:

A

B

C

D

5. A positive NPV for a new project is reliable only if it is based on:                 A. forecast of cash flows B. Michael Porter's theories C. identifiable sources of economic rents D. none of the above

Select one:

A

B

C

D

6. The annual demand (in millions) for baseballs is given by the equation: Demand = 8 * (5-price).

If the price of baseballs is $2, what is the demand for baseballs (exclude $ millions)?                            Answer:

7. A rental property is providing 13% rate of return.

Next year's rent is expected to be $1.0 million and is expected to grow at 3% per year forever.

What is the current value of the property ($ million)?

Do not enter $ sign or million in the answer box.                                                                                     Answer:

8. You have inherited a run-down house in Detroit.

There is an active market in properties of this type, and similar properties are selling for $90,000.

If rented out, the cash returns are expected to be $10,000 per year forever.

If the appropriate discount rate is 10%, how much is the house worth ($).

(do not put any commas in the answer box; do not enter $ sign in the answer box.

eg., if your answer is $10,000, just give answer as 10000 and not as 10,000 or $10,000)?                   Answer:

9. Allen Technology Company is currently valued at $400 million.

It is proposing a new plant with a net present value of $200 million.

But the new plant will reduce the value of the existing plant by $50 million.

What is the value of the company if it takes up the new plant ($ million)?

Do not enter a $ sign or 'million' in the answer box.                                                                                 Answer: