c2solutions_0501

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1、Course2May2001AnswerKey1D26C2A27B3E28C4E29B5D30B6E31A7D32All8C33E9D34D10C35A11B36C12E37A13D38B14B39C15D40E16B41B17B42A18A43C19A44D20B45B21E46B22E47A23D48A24C49B25C50AA10B13C9D9E9Course2Solutions1May20011.DAccordingtothesemi-strongversionoftheefficientmarkettheory,pricesaccurate

2、lyreflectallpubliclyavailableinformationaboutasecurity.Thus,bythistheory,activelymanagedportfoliosshouldnotbeabletoconsistentlyoutperformtherestofthemarket.Allavailableinformationhasalreadybeenincorporatedintothecurrentmarketprice.2.ATheprivatemarketdoesnotusuallyprovidepublicg

3、oodssinceitisimpossibletoexcludenon-payingcustomers.Thisoftenmakesitimpossibleforaprivatefirmtocollectsufficientrevenuetocoverthecost.3.EAnincreaseinbusinessinventoriesindicatesthatdemandisnotashighasbusinessesanticipated,resultingininventoryaccumulation.Thedecreaseindemandisar

4、eflectionofthedownturnineconomicactivity.4.E20000X==1815.13a200.06520,0001815.13=+(0.08)(20,000)S20jS=92.9720jj=14.18%5.DXBXa==⋅0.4ninCvX=an2nXJv=i0.4nav=⇒=0.6niXJ=0.36iCourse2Solutions2May20016.EThelicensingfeeworksthesameasanincreaseinfixedcosts;itshiftsthemarketsupplyupward,

5、increasingpriceanddecreasingquantitydemanded.Atthefirmlevel,however,itincreasesaveragecostswithoutchangingmarginalcosts;therefore,therepresentativefirmincreasesoutput.Thisapparentparadoxisresolvedbythefactthatinthelongrunsomefirmswillgooutofbusiness.7.D100.12Seth=+−5000

6、11=−8954.245000=3954.242Janice=50000.0610()()=3000.005000Lori=−=PP(10)50001793.40where==679.35a106%Thesumis8747.64.8.CAdditionalpaid-incapitalwillbe$1,200,000(($3pershare-$1parvalue)¥100,000shares=$200,000increase).9.DForanormalgood,apricedeclineresultsinapositiveincomeef

7、fectandaquantityincreaselargerthanwouldbethecaseforacompensatedpricedecline.10.CProjectX:Annualcashflowsof749.78(immediateannuityat10%withPV=4000).thPayback4000in6year.NPVdiscountrate=0.025+0.50(0.07)=0.06Annuityat6%ofcashflowsof–4000,749.78,…,749.78=655.98ProjectY:thPaybackin5

8、year5IRRisinterestratesuchthat:4000=6600vÆIRR=10.5%5NP