Department of Economics
Faculty of Economics and Political Sciences
National and Kapodistrian University of Athens
Postgraduate Program
Master in Business Administration – Internal Audit
Academic year 2015-2016
Module II – Introduction to Internal Audit
October 2015
1st essay
Question 1 (3 units)
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Distinguish between certainty, and risk and uncertainty.
Under what circumstances is it appropriate that a model be based on assumptions that are
extremely simplistic? Could it, nevertheless, be a good model? Could a model be based on
false assumptions and yet serve a purpose? Discuss.
What determines the opportunity discount rate to be used when evaluating the present
value of a multiperiod profit steam?
Explain the notion of uncertainty in terms of the probability distribution of outcomes
associated with each decision alternative.
Briefly outline the “principal-agent” problem and what it might mean for the achievement
of the firm’s objectives.
Question 2 (4 units)
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ii.
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vi.
Define risk and uncertainty. How do we measure risk and uncertainty? Can you think of
any other, more appropriate, measure of risk and uncertainty?
Define risk aversion. Does a risk averter refuse to take risks? Will a risk averter ever select
the more risky alternative? Explain.
Demonstrate that the investor’s degree of risk aversion (or preference) is an important
element in determining his or her choice among investment alternatives.
The product manager of a large company has had a series of disastrous new-product
offerings. He fears that another failure will cost him his job. He is currently trying to make
up his mind between two rather different new products for his next new-product
launching. Product A has the greater expected value and has both a smaller minimum
outcome and a larger maximum outcome as compared with Product B. Which product do
you think the product manager will choose, and why?
Discuss the factors you would consider when evaluating a decision made by someone else.
Is it possible that you might conclude that it was a “good” decision even if the actual
outcome was a disaster? Explain.
What is sensitivity analysis? How would you incorporate this into your recommendation to
management concerning the choice between several decision alternatives?
Question 3 (3 units)
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ii.
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iv.
v.
Distinguish between the accounting cost and the economic cost. What is the importance
of this difference in business decision making?
Distinguish between disbursed and incremental cost and then use an example in order to
demonstrate this difference.
The degree of operating leverage is an important factor in business decision making, in
particular for decisions relating to the structure of a production unit and the participation
of production factors to be used.
In the choice of the production unit an important factor that has to be taken into account,
has to do with the variation of the company’s product sold. Do you agree? Please,
comment.
What is the meaning of economies of scale for a company and what does it imply for it?
GUIDELINES ON THE 1ST ESSAY
1. The end delivery date for the essay is December 6, 2015, 23:59.
2. The delivery of the essays is only in electronic form, by e-mail to
ddomointernalaudit@econ.uoa.gr. Essays received beyond this date will be subjected to
penalty (0,5 degree for each day of delay).
3. The essay is personal and should not exceed 10 pages or 3000 words. It should be well edited
and easily readable. The analysis should be organized and systematic. The letter type should
be TimesNewRoman 12, space 1,5. The reference should be according to the Harvard type.
4. The written essay should not be a simple description, but an analytic and synthesizing essay.
This means that the student must not transfer parts of other articles/books to his text, but
instead should develop his own way the information provided by the bibliography. He should
present all analytic steps and not just the outcome. In case of questions with arithmetic
calculations the rounding should be in two decimal points.
5. The essay must be characterized by clarity and must be comprehensive.
6. The bibliography to be used by each student must not refer to internet pages which are not
scientific, except for reliable networks such as economist.gr, Bloomberg.com, ft.com, among
others.
7. The right use of economic terminology should take place.
8. The diagrams should not be scanned, but instead constructed according to the process
foreseen in MS Word.
9. The numbers in parenthesis refer to the grades of each question.
Good luck!