Consider the Following Scenario When Answering the Following Questions

question 47

Multiple Choice

Consider the following scenario when answering the following questions:
Imagine a game show on television where one lucky contestant is presented with three upside-down buckets that are numbered 1,2,and 3.Under one of the buckets is a five-ounce gold bar.Under each of the other two buckets is a one-ounce gold bar.After the game ends,the contestant receives the gold bar that is under his or her bucket.
The host of the game show asks the contestant to choose one of the three buckets.After the contestant makes a choice,the host lifts up one of the remaining two buckets to reveal a one-ounce gold bar under it.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was not uncovered by the host.
The host subsequently asks the contestant if he or she would like to keep the original bucket or change buckets to the only other bucket remaining.
-If the contestant changes buckets from the original bucket to the other bucket remaining,the expected value of the game is ________; if the contestant does not change buckets and sticks with the original bucket chosen,the expected value of the game is ________.Assume that the market price of gold is $1,000 per ounce.

• A) $4,000; $4,000
• B) $2,333.33; $3,666.67
• C) $3,666.67; $2,333.33
• D) $5,000; $1,000
• E) $1,000; $5,000

Assess the effect of personal and corporate tax rates on the value added by leverage.

Recognize the different types of leverage and their implications for a firm's financial risk.

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.

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Definitions:

Resistance

The act of opposing or standing against something, often used in the context of social and political movements.

Martin Luther King, Jr.

An American Baptist minister and activist who became the most visible spokesperson and leader in the civil rights movement from 1955 until his assassination in 1968.

Freedom

The power or right to act, speak, or think as one wants without hindrance or restraint.

Oppressor

An individual, group, or institution that exercises authority or power over others in a burdensome, cruel, or unjust manner.