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Date Posted: 10:35:40 11/08/00 Wed
Author: Sean Wilson
Subject: Sample Test Answers, Could you check and correct?

MC1. F
TF1. False, acquired
2. False
3. True, don't worry about financing
4. True
5. True
6. False
7. False, put
8. False, tangibles are more likely to be abandoned
9. False, stars come first
10. False

1. ABDE
2. WACC problem??
3. Lose 300
4. win, get to keep the premium
SA2. they would only abandon if the abandonment value is greater than the PV of CFs w/o abandoning.
SA3
a. the owner will issue the stock if he feels it will increase in value. Put, owner, potential buyers, share price

b. the person will take job offer if it benefits him. call, person, current employee, money from new job

c. test marketing delays the introduction of a product. Put, product producer, world, product revenue.

d. senior management will be fired if there is a takeover. put, new owners, management, salary of management

e. the efficient machine has more chance of increasing revenues. call, you, world, increased profits from using efficient machine.

f. you can drop without penalty at a certain date. call, you, someone else wanting to get in the class, sits in the classroom

g. if you do badly on one test it won't hurt you. call, you, people who don't make a low test grade, grade

h. staying with girlfriend will only cause problems. put, girlfriend, george, medical bills.

i. he'll get money if she dies. call, george, insurance company, 5,000,000 policy.

j. you can buy if you'd like. call, me, world, expected revenues

MC2. C
MC3. B
MC4. D
MC5. either C or E
5. Buy Stock -80 Sell Stock 90
Buy Put -14 Collect B 89.47
Sell Call +4 Arbitrage +.53
Sell Bond 88

6. 7,698,113.21
7. -or -ee both
EPS 2 6 .849
Price 20 180 20
P/E 10 30 23.55
# shares 10m 7m 73m
TE 20m 42m 62m
TV 200m 1260m 1460m

8. WACC???

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