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Consider an economy with a large number of potential online game providers. The provider lacks the funds to start their projects. There is an equal number of investors who have the funds but no desire to create online games. Each investor has goods to invest. Each online game requires 20 goods to create. Suppose each investor can choose up to 10 online games. Assume that 25 percent of the online game projects fail and return zero goods to the investor. The monitoring cost is 1 good per failed project.
a. Compute the expected total return for each investor when the investor chooses 10 projects and divides the goods evenly amongst all 10 projects.
b. Compute the expected total return for each investor when the investor chooses one project.
c. Explain why the expected total return is greater when only one project is funded by the investor.
Prince Systems(PS) has 500,000 shares of common stock outstanding and its EPS is $7. The firm has a dividend payout ratio of 35% and the current market price of its stock is $75.
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A large cow barn will cost $150,000 to build today and you figure it will add $18,000 per year to your after-tax cash flows for the next ten years. If the salvage value of the building is 50% after ten years and the cost of capital is 7%, what is the..
Aloha Inc. has 6 percent coupon bonds on the market that have 9 years left to maturity. If the YTM on these bonds is 7.6 percent, what is the current bond price?
Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 3.8% r2 = 4.2% r3 = 4.9% r4 = 5.7% Assuming a constant real interest rate of 2 percent, what are the approximate expected inflation rates for the next ..
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