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Date Posted: 13:44:37 04/04/01 Wed
Author: Gabe Jonas
Subject: corrections inquiries to sample exam 2

I have attempted to answer all the questions I have clues to. I given my best effort on these problems so any help would much appreciated.

T/F
1T 6F
2F 7F
3F 8T
4F 9F
5F 10F

SA
1. Hard Rationing- strict capital rationing that allows no circumstances where constraints can be violated.
Soft Rationing- capital rationing that allows certain circumstances where the contraints can be violated or even viewed as targets rather than absolute.
2.Because they would be more likely to use the losses as tax benefits in their favor.
3. a) The owner will choose stock price as face value;put-right to sell stock. owner is long, stockholder is short. exercise price- stock price

I have no idea how to answer these problems!!!
b)c)d)e)f)g)h)i)j)

MC
1E
2E
3B
4A
5E

Problems
1. accept all projects except H & I
2. I'm not sure how to do this problem!
3. out of the money, loss of $300
4. in the money, profit of $300
5. 94>91.71 therefore: buy stock & put, sell call & riskless bond; buy stock & put w/ borrowed funds to make a $2.29 profit
6. It seems this problem is missing a strike price? Otherwise, I know how to compute this problem.
7. Bidder Target Combined
Stock 20 180 20
# Shares 10,000,000 7,000,000 73,000,000
NI 20,000,000 42,000,000 62,000,000
EPS 2 6 .85
P/E 10 30 23.53
MC 200,000,000 1,260,000,000 1,460,000,000
8. I do not know how to set this problem up!!!

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