QUESTION 1 

It is common knowledge between Countries 1 and 2 that Country 1 plans to attack Country 2. The attack can occur at one of two locations, C and D. The success or failure of the attack depends on three factors: where Country 1's troops are amassed prior to the attack (near C or near D), where the attack occurs, and which location is defended. Let x denote the fraction of Country 1's troops amassed near C, and (1-x) the fraction of Country 1's troops amassed near D (0x1). The game is played as follows: simultaneously, Country 1 chooses to attack either C or D, and Country 2 decides to defend either C or D. There are only two possible outcomes, from the point of view of Country 1: Success and Failure. Country 1 strictly prefers Success to Failure and Country 2 has the opposite ranking. The two countries have von Neumann-Morgenstern preferences over lotteries involving these two outcomes. The probability of a successful attack is determined as follows. Let z denote the fraction of Country 1's troops amassed near the location where Country 1 attacks (so z = x if Country 1 attacks at C, and z= 1-x if Country 1 attacks at D). Then the probability of a successful attack is z if Country 2 does not defend the location where Country I attacks, andzif Country 2 does defend the location where Country I attacks. For parts (a)-(f) assume that the value of x is fixed and cannot be changed; furthermore, the value of x is common knowledge between the two countries. (a) Write a strategic-form game that represents the situation described above. (b) Is there a range of values of x for which Country 1 has a dominant strategy? If so, state the range and specify whether it is strict or weak dominance. fe) Is there a range of values of which Connte 26

 

If a firm adheres strictly to the residual dividend policy, a sale of new common stock by the company would suggest that a. The dividend payout ratio has remained constant. b. The dividend payout ratio is increasing. c. No dividends were paid for the year. d. The dividend payout ratio is decreasing. e. The dollar amount of investments has decreased. 131. If a firm adheres strictly to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for that year (along with new debt according to the optimal debt/total assets ratio), the firm should pay a. No dividends except out of past retained earnings. b. No dividends to common stockholders. c. Dividends, in effect, out of a new issue of common stock. d. Dividends by borrowing the money (debt). e. Either statement c or statement d above could be used.

Ten years ago, Johnson Recovery purchased a wrecker for $400, 000 to move disabled 18-wheelers. He received a salvage value of $30, 000 after 10 years of use. During this 10-year period, his average annual revenue totaled $70, 000.

a) Did he recover his investment at 12% per year return? In other words, does the Annual Equivalent Value of the benefits exceed the Capital Recovery cost at an interest rate of 12%?

b) Suppose Johnson moves, on average, 150 disabled 18-wheelers each year. What is his average equivalent benefit/cost per vehicle moved?

c) Now, incorporate annual operating and maintenance costs into your analysis. If the annual O&M cost was $5, 000 the first year and increased by a constant 10% per year, is the AW positive or negative at 12% per year?