Sally Kink Is an Expected Utility Maximizer with Utility Function

question 8

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) + (1 - p) u(c₂) , where for any x < 8,000, u(x) = 2x, and for x greater than or equal to 8,000, u(x) = 16,000 + x.

• A)Sally will never take a bet if there is a chance that it leaves her with wealth less than $16,000.
• B)Sally will be risk neutral if her income is less than $8,000 and risk averse if her income is more than $8,000.
• C)Sally will be risk averse if her income is less than $8,000 but risk loving if her income is more than $8,000.
• D)For bets that involve no chance of her wealth exceeding $8,000, Sally will take any bet that has a positive expected net payoff.
• E)None of the above.

Calculate and interpret the total assets turnover ratio.

Understand the concept and calculation of return on equity (ROE).

Compute basic earning power (BEP) and comprehend its significance.

Evaluate corporate financing decisions using debt ratio targets.

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Definitions:

Partnership

A partnership is a legal form of business operation between two or more individuals who share management and profits.

Proprietorship

Proprietorship, also known as sole proprietorship, is a business owned and operated by a single individual, where the owner and the business are legally treated as the same.

Taxed

Describes funds or goods that are subjected to taxation by governmental authorities.

Maximize Profits

The process or strategy used by businesses to ensure they achieve the highest possible profit from their operations.