Posted: February 8th, 2016

1. In game theory analysis, what is a “dominant strategy”? 2. A firm’s most recent annual dividend was $2 per share; its shares sell for

1. In game theory analysis, what is a “dominant strategy”?

2. A firm’s most recent annual dividend was $2 per share; its shares sell for $40 in the stock market, and the company expects its dividend to grow at a constant rate of 5% in the foreseeable future. Using the dividend growth (Gordon) model, what would you estimate its equity cost of capital to be? Show all the steps leading to your answer.

3. Two projects have the following NPV’s and standard deviations:

Project A Project B

NPV 200 300

Standard deviation 75 100

a) Which of the two projects is more risky? Show all the steps leading to your answer.

b) Why?

4. What are the major ways that the risks of exchange rate changes can be hedged against?

5. What are the ways a multinational corporation can reposition its funds to increase its profits?

6. A function of government is to regulate “natural monopolies.”

a) Explain what is a natural monopoly, and

b) Why it requires government regulation