Scenario 2.1: The Demand for Books Is: Q_d = 120 - P

question 56

Multiple Choice

Scenario 2.1:
The demand for books is: Q_d = 120 - P
The supply of books is: Q_s = 5P
-Refer to Scenario 2.1. If P = $25, which of the following is true?

• A) There is a surplus equal to 30.
• B) There is a shortage equal to 30.
• C) There is a shortage, but it is impossible to determine how large.
• D) There is a surplus, but it is impossible to determine how large.

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Definitions:

Discounted Free Cash Flow

A valuation method estimating the attractiveness of an investment opportunity by discounting projected free cash flows.

Average Cost

A method to determine the cost basis of investments by averaging the purchase price of all the shares.

Capital

Funds or resources that individuals or businesses use to invest in assets or operations with the goal of generating income or profit.

Free Cash Flow Valuation Approach

A method of valuing a business by estimating the cash that can be generated after accounting for capital outlays necessary to maintain or expand the asset base.