1) The absolute value of price elasticity of demand for a linear demand curve (constant slope) follows the pattern (moving from high prices to low prices along the demand curve)

a. constant.

b. increases.

c. decreases.

d. has no pattern (of changes).

2) Given a demand function P=20–0.2Q. The own-price elasticity at (Q=25, P=15) is

a. -1.

b. -2.

c. -3.

d. -4.

3) A market has only two consumers: A and B. Consumer A has a demand function given by P = 100 – 0.4q and consumer B has a demand function given by P = 80 – 0.5q. At P=90, the market total demand is

a. 5.

b. 15.

c. 25.

d. undetermined.

4) A market has only two consumers: A and B. Consumer A has a demand function given by P = 100 – 0.4q and consumer B has a demand function given by P = 80 – 0.5q. At P=50, the market total demand is

a. 185.

b. 225.

c. 275.

d. 305.

The table below shows the total demand for cable TV subscriptions for a monopoly. Assume that the monopolist incurs an annual fixed cost of $100,000 and that the marginal cost of providing an additional subscription is always $100.

1. What is the profit-maximizing level of quantity and price? What is the profit at this level of output? Explain your answers using the concept of marginal revenue and marginal cost.                                                                                                             
2. The following table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B).

Critically analyze the following (remember to justify your answers):

1. Is Up-Right a Nash equilibrium?                                                       (1 mark)
2. Is Up-Left a Nash equilibrium?                                                          (1 mark)
3. Is Down-Right a Nash equilibrium?                                                   (1 mark)
4. Is Down-Left a Nash equilibrium?                                                     (1 mark)

Compost Science Inc. (CSI) is in the business of converting Boston’s sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce CSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whatever amount is necessary to yield CSI a 15% book return on equity. At the end of the year, CSI is expected to pay a $4 dividend. It has been reinvesting 30% of earnings and growing at 4% a year.

a1) Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100

a2) What part of the $100 price is attributable to the present value of growth opportunities?

b) Now the MDC announces a plan for CSI to treat Cambridge sewage. CSI’s plant will, therefore, be expanded gradually over five years. This means that CSI will have to reinvest 60% of its earnings for five years. Starting in year 6, however, it will again be able to pay out 70% of earnings. What will be CSI’s stock price once this announcement is made and its consequences for CSI are known?

XYZ's stock price and dividend history are as follows:

An investor buys three shares of XYZ at the beginning of 2016, buys another two shares at the beginning of 2017, sells one share at the beginning of 2018, and sells all four remaining shares at the beginning of 2019.

a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Round your year-by-year rates of return and final answer to 2 decimal places. Do not round other calculations.)

b. What is the dollar-weighted rate of return? (Hint: Carefully prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2016, to January 1, 2019. If your calculator cannot calculate internal rate of return, you will have to use trial and error.) (Round your answers to 4 decimal places. Negative amount should be indicated by a minus sign.)

The firm Kappa has just decided to undertake a major new project. As a result, the value of the firm in one year’s time will be either $120 million (probability 0.25), $250 million (probability 0.5) or $360 million (probability 0.25). The firm is financed entirely by equity and has 10 million shares. All investors are risk-neutral, the risk-free rate is 4% and there are no taxes or other market imperfections.

Kappa decides to issue debt with face value $146 million due in one year and use the proceeds to repurchase shares now. Assume now that bankruptcy costs will be 15% of the value of the firm’s assets in the event of default on debt repayment.

(c) What is the expected value of the firm and the price per share? How many shares will be repurchased?

(d) Assume Kappa decides instead to issue debt with face value $100 million due in one year and repurchase shares with the proceeds. What is the firm’s value now? Why? What is its share price?

(e) Explain how the presence of corporate taxes would influence Kappa’s restructuring decision. (100 words)

1. Tracy Company, a manufacturer of air conditioners, sold 100 units to Thomas Company on November 17, 2021. The units have a list price of $500 each, but Thomas was given a 30% trade discount. The terms of the sale were 2/10, n/30. Thomas uses a perpetual inventory system.

A) Prepare the journal entries to record the (a) purchase by Thomas on November 17 and (b) payment on November 26, 2021. Thomas uses the gross method of accounting for purchase discounts.

B) Prepare the journal entry for the payment, assuming instead that it was made on December 15, 2021.

2. Tracy Company, a manufacturer of air conditioners, sold 100 units to Thomas Company on November 17, 2021. The units have a list price of $500 each, but Thomas was given a 30% trade discount. The terms of the sale were 2/10, n/30. Thomas uses a perpetual inventory system.

A) Prepare the journal entries to record the purchase by Thomas on November 17 and payment on November 26, 2021 and December 15, 2021 using the net method of accounting for purchase discounts.

2. An investor plans to retire in 10 years. As part of the retirement portfolio, the investor buys a newly issued, 12-year, 8% annual coupon payment bond. The bond is purchased at par value, so its yield-to-maturity is 8.00% stated as an effective annual rate.

a. Calculate the approximate Macaulay duration for the bond, using a 1 bp (0.01%) increase and decrease in the yield-to-maturity and calculating the new prices per 100 of par value to six decimal places.

b. Calculate the duration gap at the time of purchase. (Hint: An investor plans to retire in 10 years. So, this investor’s investment horizon is 10 years.)

c. Does this bond at purchase entail the risk of higher or lower interest rates?

d. A bond is currently trading for 98.722 per 100 of par value. If the bond’s yield-to-maturity (YTM) rises by 10 basis points, the bond’s full price is expected to fall to 98.669. If the bond’s YTM decreases by 10 basis points, the bond’s full price is expected to increase to 98.782. What is the bond’s approximate convexity?

Part 3: Risk analysis and project evaluation
3.1 Perform a scenario analysis on the data provided
Case Study: Assume that the company, where you are working as a team in Financial
Department, is considering a potential project with a new product that is expected to sell for
an average price of $22 per unit and the company expects it can sell 650 000 unit per year at
this price for a period of 4 years. Launching this project will require purchase of a $3 500 000
equipment that has residual value in four years of $500 000 and adding $ 850 000 in working
capital which is expected to be fully retrieved at the end of the project. Other information is
available below:
Depreciation method: straight line
Variable cost per unit: $17
Cash fixed costs per year: $450 000
Discount rate: 10%
Tax Rate: 30%
Do a scenario analysis with cash flows of the assumed project to determine the sensitivity of
the project’s NPV to different scenarios that are defined in terms of the estimated values for
each of the project’s value drivers. Please work on two scenarios corresponding to the worstand best-case outcomes for the project. You need to provide your results in (a) relevant tables:
Worst case: Unit sales decrease by 20%; price per unit decreases by 20%; variable cost per
unit increases by 20 %; cash fixed cost per year increases by $100 000
Best case: Unit sales increase by 20%; price per unit increases by 20%; variable cost per unit
decreases by 20%; cash fixed cost per year decreases by $100 000
Based on the scenario analysis outcome, draw relevant conclusion about project NPV’s Part 3: Risk analysis and project evaluation
3.1 Perform a scenario analysis on the data provided
Case Study: Assume that the company, where you are working as a team in Financial
Department, is considering a potential project with a new product that is expected to sell for
an average price of $22 per unit and the company expects it can sell 650 000 unit per year at
this price for a period of 4 years. Launching this project will require purchase of a $3 500 000
equipment that has residual value in four years of $500 000 and adding $ 850 000 in working
capital which is expected to be fully retrieved at the end of the project. Other information is
available below:
Depreciation method: straight line
Variable cost per unit: $17
Cash fixed costs per year: $450 000
Discount rate: 10%
Tax Rate: 30%
Do a scenario analysis with cash flows of the assumed project to determine the sensitivity of
the project’s NPV to different scenarios that are defined in terms of the estimated values for
each of the project’s value drivers. Please work on two scenarios corresponding to the worstand best-case outcomes for the project. You need to provide your results in (a) relevant tables:
Worst case: Unit sales decrease by 20%; price per unit decreases by 20%; variable cost per
unit increases by 20 %; cash fixed cost per year increases by $100 000
Best case: Unit sales increase by 20%; price per unit increases by 20%; variable cost per unit
decreases by 20%; cash fixed cost per year decreases by $100 000
Based on the scenario analysis outcome, draw relevant conclusion about project NPV’s

1. A 49-year-old woman is seen for her yearly gynecologic examination. Basic screening indicates a severe anemia, and she is referred to a hematologist. Further investigation of the anemia requires a visit to a gastroenterologist. An endoscopy and colonoscopy are performed, and the woman is diagnosed with a partially obstructing tumor in her colon. After surgery to remove the tumor, the woman and her husband are informed that she has stage III colon cancer with involvement of two lymph nodes. (Explain)

A. Cancer cells are characterized by

B. The most commonly reported symptom of cancer is:

C. After discussing her diagnosis with an oncologist, the woman chooses to undergo chemotherapy. Since she has already undergone a resection or removal of the tumor, her treatment therapy is considered to be:

Loretta is a physical therapist specializing in diabetic foot care. She sees Louise monthly. Louise is quite down when she hobbles into the clinic today, her ankles bandaged with blood oozing through the gauze. She tells Loretta, “I’m sure my feet are much worse this month. I haven’t been so good about my sugar, and it didn’t help that my husband hit my ankles with his cane twice last week. I think he is upset about my taxi fare to get here. I think I’ll stop coming.” She begins to cry.

What are the clinical, legal, and ethical questions that face Loretta in this case? What might she do?