Exhibit 7.2 The Following Questions Are Based on the Problem Below

question 68

Multiple Choice

Exhibit 7.2
The following questions are based on the problem below.
An investor has $150,000 to invest in investments A and B. Investment A requires a $10,000 minimum investment, pays a return of 12% and has a risk factor of .50. Investment B requires a $15,000 minimum investment, pays a return of 10% and has a risk factor of .20. The investor wants to maximize the return while minimizing the risk of the portfolio. The following multi-objective linear programming (MOLP) has been solved in Excel.
-Refer to Exhibit 7.2. What formula goes in cell B10?

• A) =SUMPRODUCT(B2:C2,$B$6:$C$6)/$D$7
• B) =B2*C2+B3*C3
• C) =SUMPRODUCT(B3:C3,$B$6:$C$6)/$D$7
• D) =SUMPRODUCT(B2:C2,$B$6:$C$6)

Understand the impact of capital structure changes on a firm's cost of equity.

Analyze the relationship between a firm's capital structure and its operational efficiency, as reflected by free cash flows and leveraged versus unleveraged beta.

Understand how stock splits affect shareholder position and stock price.

Grasp the stability and determinants of dividends.

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Definitions:

Independent

A term describing events that are not affected by other events, or variables with no association or influence on each other.

Net Present Value

A calculation that compares the value of all cash inflows and outflows of a project or investment using a specified discount rate.

Cash Inflows

Funds entering a business or project, typically received through sales, investments, or financing.

Cash Outflows

Money spent or costs incurred by a business or individual, resulting in a decrease in cash assets.