1. Ignoring which of the following will cause the NPV of a project to be underestimated?
I. option to abandon
II. option to expand
III. option to wait
IV. option to contract
A. I and III only
B. II, III, and IV only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
2. Which one of the following is an example of a real option for a restaurant?
A. opening a new restaurant with a different look and an entirely different menu to see if that type of restaurant appeals to the public
B. deciding to close one hour earlier during the winter months due to slow sales
C. abandoning a menu item based on customer complaints
D. deciding to open only two new locations next year instead of the five that were originally scheduled
E. deciding to create separate lunch and dinner menus rather than have them combined on one menu.
3. Which one of condition indicates a highest level of risk of return?
A. Normal economic condition: r=10%; Economic downturn: r=3%.
B. Normal economic condition: r=10%; Economic downturn: r=-5%.
C. Normal economic condition: r=20%; Economic downturn: r=-5%.
D. Normal economic condition: r=20%; Economic downturn: r=3%.
E. Normal economic condition: r=10%; Economic downturn: r=1%.
4. Financial leverage impacts the performance of a firm by:
A. increasing the volatility of the firm's EBIT.
B. decreasing the volatility of the firm's EBIT.
C. decreasing the volatility of the earnings to firm's shareholders.
D. increasing the volatility of the earnings to firm's shareholders
E. lowering the firm's level of risk.