5. Last month you introduced a new product to the market. Consumer d emand has b

Question

5. Last month you introduced a new product to the market. Consumer d emand has been overwhelming and it appears that strong demand will exist over the long-term situation, management should consider the option to A. Suspend B. Expand C. Abandon D. Contract E. withdraw 6. The timing option that gives the option to wait: I. may be of minimal value if the project relates to a rapidly changing technology Il. is partially dependent upon the discount rate applied to the project being evaluated III. is defined as the situation where operations are shut down for a period of time IV. has a value equal to the net present value of the project if it is started today versus the net present value if it is started at some later date. A. I and Ill only B. Il and IV only C. I and Il only D. II, III, and IV only E. I, II, and IV only Theoretically, the NPV is the most appropriate method to determine the acceptability of a project. A false sense of security can overcome the decision-maker when the procedure is applied properly but the positive NPV results are accepted blindly. Sensitivity and scenario analysis aid in the process by: A changing the underlying assumptions on which the decision is based B. highlights the areas where more and better data are needed C. providing a picture of how an event can affect the calculations D. All of these E. None of these 7. bond with a 6% coupon that pays interest semn annually and is priced at par will have a market price of A $1,006; $60 B. $1,060, $30 C. $1,060; $60 D. $1,000; $30 E. $1,000; $60 8, A and interest payments in the amount of each 9. All else constant, a bond will sell rate at when the yield to maturity is the coupon A a premium, higher than B. a premium; equal to at par, higher than D. at par, less than E. a discount, higher than

Explanation / Answer

Question 5. Expand

Question 6. Option E i.e., I,II &IV only

Question 7. Option D i.e., all of the above

Question 8. Assuming time = 1 year

Assuming yield to maturity= coupon rate= 3%

Bond pays interest semi annually

Therefore, time= 2 years , coupon rate =. 3%, yield to maturity = 3%, Maturity value =1000

Let interest= 30, price= 30* PVAF (3%,2years)+1000*PVF (3%,2 years)

Price=1000

Hence, interest = 30 & maturity value=1000

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