Aardvark Software Inc

question 29

Multiple Choice

Aardvark Software Inc. can purchase all the stock of Zebra Computer Services for $1,200,000 in cash. Zebra is expected to generate net after-tax cash flows of $100,000 per year for each of the next 12 years. Based solely on the cash flow analysis and the facts provided, Aardvark should

• A)not purchase Zebra Computer Services.
• B)purchase Zebra Computer Services.
• C)purchase Zebra only if Aardvark's cost of capital is between 5% and 10%.
• D)purchase Zebra only if Aardvark's cost of capital is above 10%.

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Definitions:

Sample Averages

The mean value calculated from a sample set of data, representing the central tendency or typical value of that sample.

Mode

Mode refers to the most frequently occurring value in a set of data.

Regression Toward the Mean

A statistical phenomenon wherein extreme scores on one occasion tend to be closer to the average on subsequent testing.

Illusory Correlation

A cognitive bias where people falsely perceive an association between two unrelated events or variables.