Refer to the data provided in Table 11.3 below to answer the following question(s).
Table 11.3ProjectTotal InvestmentExpected Rate of Return(dollars) (percentage)New computer for sales staff $250,00011Remodel for distribution center$200,000 9On-site day care center $100,000 5Employee fitness center$50,000 4Refer to Table 11.3. If the interest rate is 10%, Blackstar Drone Manufacturing should
A. fund only the purchase of new computers for its sales staff.
B. fund all of the projects except for the purchase of new computers for its sales staff.
C. fund all of the projects.
D. not fund any of the projects.
Answer: A
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Refer to Scenario 17.3. Moral hazard arises in this situation because once the firm
A) pays the premium that is based on the 0.001 probability, it has no incentive to spend the additional $80 for the fire protection program, so the true probability of loss is no longer 0.001. B) pays the premium that is based on the 0.01 probability, it has no incentive to spend the additional $80 for the fire protection program, so the true probability of loss is no longer 0.01. C) puts the fire protection program in place, it has less incentive to spend $300 for a premium, leaving the firm underinsured. D) puts the fire protection program in place, it has less incentive to spend $6,000 for a premium, leaving the firm underinsured. E) puts the fire protection program in place, it will consider that a substitute for insurance and not be able to deal with the loss from a fire should it occur.
If you have $1,000 in an account that offers "3x" margin, you can effectively buy:
A. $3,000 worth of stocks. B. $1,000 worth of stocks. C. $3,000 worth of guaranteed government bonds. D. $2,000 worth of guaranteed government bonds.