Consider the Following Scenario to Answer the Questions That Follow

question 13

Multiple Choice

Consider the following scenario to answer the questions that follow.
Derek and Heriberto are playing an ultimatum game where Derek is given $500.00 and asked to propose a way of splitting it with Heriberto. When Heriberto learns Derek's proposal, Heriberto chooses whether to accept or reject the split. If Heriberto accepts the split, both players receive the money according to Derek's split proposal. If Heriberto rejects the split, both players receive nothing. This game will be played only once, so Derek does not have to worry about reciprocity when making his choice.
-Suppose that Derek proposes a split such that Derek will receive $489.99 and Heriberto will receive $10.01.Traditional economic theory predicts that Heriberto will:

• A) accept the $10.01 because he values receiving $10.01 more than receiving nothing.
• B) accept the $10.01 because he wishes to punish Derek for proposing such an unfair split.
• C) reject the $10.01 because he wishes to punish Derek for proposing such an unfair split.
• D) reject the $10.01 and also would have rejected a split such that Derek receives $250.00 and Heriberto receives $250.00.
• E) sometimes accept the $10.01 and sometimes reject the $10.01, depending on his mood at the time.

---

Definitions:

Operating Cycle

The average period of time between the purchase of inventory and the collection of cash from receivables, indicating how quickly a company can turn its products into cash.

Sales On Account

Transactions where goods or services are sold to a customer with an agreement that payment will be made at a later date.

Cost Of Goods Sold

The total cost directly associated with the production of the goods sold by a company.

Times Interest Earned

A ratio that measures a company's ability to meet its interest obligations, calculated by dividing earnings before interest and taxes (EBIT) by the interest expense.