a. crisis or bubble
b. disruptive innovation
c. fad
d. negative innovation
Supplementary Questions (may require basic knowledge of probability and/or prior introductory accounting and business concepts)
c. 1. You have the opportunity of making a $5,000 investment. The outcomes one year from now will be either $4,500 or $6,000 with an equal chance of either outcome occurring. What is the expected outcome?
a. $4,500
b. $6,000
c. $5,250
d. $5,750
e. $5,000
a. 2. You have the opportunity of making a $5,000 investment. The outcomes one year from now will be either $5,000 or $6,000 with an equal chance of either outcome occurring. What is the expected rate of return?
a. 10%
b. 15%
c. 20%
d. 25%
e. 30%
c. 3. A project requires an initial investment of $1,000,000. In one year, there is a 40% chance of a $950,000 return; a 50% chance of a $1,200,000 return; and a 10% chance of a $2,000,000 return. What is the project’s expected return one year from now?
a. 12.8%
b. 15.5%
c. 18.0%
d. 38.3%
a. 4. Lindsey and Tobias have the opportunity to invest in a project that requires an investment of $3,000. There is a 35% chance of a $2,900 return; a 40% chance of a $3,400 return; and a 25% chance of a $4,500 return one year from now. Lindsey requires a 15% return on the project after the first year, but Tobias requires a return of only 12%. Using the expected rate of return:
a. Lindsey and Tobias should both invest in the project
b. Only Tobias should invest in the project
c. Only Lindsey should invest in the project
d. Lindsey and Tobias should both reject the project
b. 5. You are considering investing in two independent projects “A” and “B”. Project A requires an initial investment of $12,000. In one year, there is a 30% chance of a $10,500 return; a 50% chance of a $12,500 return; and a 20% chance of a $14,500 return. Project B requires an initial investment of $1,000. In one year, there is a 25% chance of a $950 return; a 25% chance of a $1,000 return; and a 50% chance of a $1,200 return. If you require a 7% return on your investment after one year, you should:
a. Accept A and reject B
b. Accept B and reject A
c. Accept both projects
d. Reject both projects
c. 6. Assume that you can sell a new product at $5.00 per unit. Your variable costs are $3.00 per unit and you fixed costs are $20,000. What is your breakeven point in sales units?
a. 5,000
b. 7,500
c. 10,000
d. 12,500
e. 15,000
d. 7. Assume that you can sell a new product at $5.00 per unit. Your variable costs are $3.00 per unit and you fixed costs are $20,000. What will be your profit before taxes if you sell 12,000 units next year?
a. $0
b. $1,000
c. $2,000
d. $4,000
e. $8,000