# 61. The management of the Wish We Could Co. has numerous

```61. The management of the Wish We Could Co. has numerous requests on their desks from
division managers. These requests are seeking funds for positive net present value projects
with projected rates of return ranging from 8 percent to 100 percent. Management determines
that they must deny all funding requests due to the financial situation of the
company.Management is apparently in a situation referred to as:
hard rationing.
62. At a production level of 5,600 units a project has total costs of \$89,000. The variable
cost per unit is \$11.20. What is the amount of the total fixed costs if the production
level is increased to 6,100 units without increasing the total fixed assets?
\$26,280
Total fixed cost = \$89,000 – (5,600  \$11.20) = \$26,280
63. Ralph is in charge of a project that has a degree of operating leverage of 2.5. What will
happen to the operating cash flows if Ralph increases the number of units sold by 5
percent?
increase by 12.5 percent
Percentage change in OCF = 2.5  .05 = 12.5 = 12.5 percent increase
64. The return earned in an average year over a multi-year period is called the _____
average return.
arithmetic
65. The average risk premium on U.S. Treasury bills over the period of 1926 to 2003 was
_____ percent.
0.0
66. Insider trading does not offer any advantages if the financial markets are:
strong-form efficient.
67. Winslow, Inc. stock is currently selling for \$40 a share. The stock has a dividend yield of
3.8 percent. How much dividend income will you receive per year if you purchase
500 shares of this stock?
\$760
Dividend income = \$40  .038  500 = \$760
68. A stock had returns of 8 percent, 39 percent, 11 percent, and -24 percent for the past four
years. Which one of the following best describes the probability that this stock will
NOT lose more than 43 percent in any one given year?
97.5 percent
Average return = (.08 + .39 + .11  .24)  4 = 8.5 percent; Total squared deviation =
(.08 – .085)2 + (.39 – .085)2 + (.11 – .085)2 + (-.24 – .085)2 = .000025 + .093025 +
.000625 + .105625 = .1993; Standard deviation = .1993  (4 – 1) = .06643333 =
25.7747 percent;
Lower bound of the 95 percent probability range = 8.5 percent – (2  25.7747 percent) =
-43.05; Probability of NOT losing more than 43 percent in any given year is 97.5 percent
69. Risk that affects at most a small number of assets is called _____ risk.
unsystematic
70. Which one of the following is an example of a nondiversifiable risk?
a well respected chairman of the Federal Reserve suddenly resigns
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