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quiz%201%20solutions%202010%202%20summer%20c

# quiz%201%20solutions%202010%202%20summer%20c - FNAN 301...

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FNAN 301, Summer C 2010, quiz 1, solutions Conceptual: most valuable 1. Cowboy Frozen Custard is planning to sell its Dallas, Houston, and San Antonio stores in S years from today. The firm expects to sell its Dallas store for a cash flow of $A, its Houston store for a cash flow of$A, and its San Antonio store for a cash flow of $B. The cost of capital for the Dallas and San Antonio stores is Y percent and the cost of capital for the Houston store is X percent. We know that A > B > 0, Y > X > 0; and S > 0. The cash flows from the sales are the only cash flows associated with the various stores. Based on the information in the preceding paragraph, which one of the following assertions is true? A. The Dallas store is the most valuable of the 3 stores B. The Houston store is the most valuable of the 3 stores C. The San Antonio store is the most valuable of the 3 stores D. Two of the three stores have equal value and those two stores are more valuable than the third store or all three stores have the same value E. None of the above assertions is true 1. Cowboy Frozen Custard is planning to sell its Dallas, Houston, and San Antonio stores in S years from today. The firm expects to sell its San Antonio store for a cash flow of$A, its Dallas store for a cash flow of $A, and its Houston store for a cash flow of$B. The cost of capital for the San Antonio and Houston stores is Y percent and the cost of capital for the Dallas store is X percent. We know that A > B > 0, Y > X > 0; and S > 0. The cash flows from the sales are the only cash flows associated with the various stores. Based on the information in the preceding paragraph, which one of the following assertions is true? 1. Cowboy Frozen Custard is planning to sell its Dallas, Houston, and San Antonio stores in S years from today. The firm expects to sell its Houston store for a cash flow of $A, its San Antonio store for a cash flow of$A, and its Dallas store for a cash flow of \$B. The cost of capital for the Houston and Dallas stores is Y percent and the cost of capital for the San Antonio store is X percent. We know that A > B > 0, Y > X > 0; and S > 0. The cash flows from the sales are the only cash flows associated with the various stores. Based on the information in the preceding paragraph, which one of the following assertions is true? 1

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FNAN 301, Summer C 2010, quiz 1, solutions
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