Exam 2: Consumption, Investment and the Capital Market

Consider the following investment/dividend opportunities facing a company: Assume that the interest rate in the capital market is 12 per cent per period.Also assume that the company has four equal shareholders (A,B,C and D).Will the shareholders support the company's decision to invest in Projects Normal and Mega instead of just Project Mega?

Consider the following diagram: In the diagram,if the optimal policy is chosen then shareholder 2,with the lower indifference curve,will optimise her consumption by:

Consider the following graph: What is the interest rate per period?

Fisher's separation theorem assumes markets have imperfections.

An important implication of Fisher's separation theorem is that:

Which of the following correctly represents the equation of a market opportunity line?

Consider the following investment/dividend opportunities facing a company: Assume that the interest rate in the capital market is 12 per cent per period.What is the NPV of Project Mini?

The curve showing a set of combinations that an individual derives equal utility from any combinations in the set is the:

Fama (1970)outlines the sufficient conditions in order for all shareholders to agree about the exact nature of uncertainty.Which of the following statements is not one of the specified sufficient conditions?

Pursuing a goal of maximising the market value of a company's shares is easy when:

A number of implications for investment,financing and dividend decisions can be drawn from Fisher's analysis.In terms of financing decisions Fisher's analysis states that:

When there is uncertainty,the effect on the share price due to decisions made by managers:

Which statement is false with respect to the decision rule: accept a project if and only if [Return at Time 2 / (1 + i)- Δ] > 0?

According to Fisher's Theorem,provided that the company does not alter its investment decision,the dividend decision does not affect _______________________.

The assumed overall financial objective of a company is to:

Share prices change as a result of investors' reaction to _________ provided through investment,financing and dividend decisions made by the managers of a company.

An indifference curve represents a set of possible consumption outcomes,which yields equal utility to the individual.

Consider the following investment/dividend opportunities facing a company: Assume that the interest rate in the capital market is 12 per cent per period.Calculate the rate of return on Project Normal.

In the absence of _______________ companies are unable to make decisions about dividend policy that will please all share holders.

The AlhpaBeta company is considering considering several investment opportunities.The interest rate for both borrowing and lending is 15 per cent per period and the investment/dividend opportunities are given in the following table: (a)What is the net present value of each project? (b)Based on the NPV rule which project(s)should the company invest in? (c)What is the IRR of project AOne? (d)The company has 2 equal shareholders,Alpha and Beta,and invests in the project CThree.Alpha would prefer to consume $500 today.What can she do? How much will she be able to consume later?