1. a

2. 1) Generating ideas 2) review existing projects 3) prepairing proposals 4) evaluating proposed projects and creating capital budgets 5) preparing appropriation requests

Most important - generating ideas, why - without good ideas, the rest doesn't matter

3) a - b, b - a, c -e, d - b

4) NPV, most consistant with maximizing shareholder wealth.  I also accepted the answer to maximize the Strtegic NPV (passive NPV + value of options)

5) A

6) C

7) E

8) D or E

9) B

10) A

11) C

12) For every $1 invested today, we get back, in today’s dollars/present value $1.52 in cash inflows. Thus, if the PI is greater than 1, we are getting back more than $1 present value for every $ we invest. 

Showing the math of PI lost full credit, as marketing majors cannot do math.

13) right to buy or sell a good for a limited time at a specific price.  Real options refer to options embedded in capital budgeting projects. Strategic NPV = Passive NPV + value of real options – cost of real options.  Accept capital budgeting projects if Strategic NPV > 0.

14) call, friend, me, book’s value

15) put, me, friend, value/cost of cloths, $300 is the exercise price rather than the underlying asset.

16) put, me, manager, yourself

17) call, me, manager, love/money

1) NPV = $159457.92, IRR = 25.84, payback period = between 2 and 3 years, PI = 1.56

2) B,C,A, F, H has NPV=13.6was partially done in class, partial credit for B,A,F,G

3) At a discount of 15% the NPV  of this project is -$48.79; CF 0, -465; 1-4, +100-20 -100(+150-50)=20-8=12+100=112, CF5=112+82).

These three questions were part of the comprehensive part of the exam. 4) c

5) d

6) b

Mystery golf problem CF 0, -300; 1, 3940; 2, 6049; 3, 5476; 4, 6046; 5, 6811; 6, -16583, did not make final version of the exam