1. Suppose you are evaluating a project to establish a new car factory. Having analyzed several scenarios, you come up with three outcomes. First, the worst-case scenario (probability of 25%) the expected cashflow is $50 billion. The cashflow for the base-case scenario (probability of 50%) is $100 billion. Finally, the best-case scenario (probability of 25%), would result in a cashflow of $200 billion. From the following present values of outlays for establishing the factory, choose all that does make sense as an investment decision.

1. $50 billion
2. $100 billion
3. $150 billion
4. $200 billion
5. $250 billion

2. When a firm is announcing that it is acquiring another firm, and when shares of both firms are traded on the market, share prices of the firms would move in different directions, depending on the views of the market regarding value transfer. What is the best interpretation when the price of acquirer's stock dropped by 20 percent, resulting in the loss of $40 million in market capitalization, while the price of target company's stock jumped by 40 percent, resulting in a gain of $20 million in market capitalization.

1. Value destruction and transfer of wealth from acquirer to target
2. Value destruction and transfer of wealth from target to acquirer
3. No change in value nor transfer of wealth
4. Value creation and transfer of wealth from acquirer to target
5. Value creation and transfer of wealth from target to acquirer

3. Choose one appropriate statement.

1. The movement of stock prices have certain patterns, and investors can make profits by studying such patterns.
2. If a hedge fund manager believes that Toyota will going to outperform Honda she will short stocks of both companies.
3. When one share of Apple stock is being traded at $150, the stock market believes that you can always sell a share of Apple stock for at least $150 in the future.
4. An undervalued stock should outperform the market in the long run.
5. Diversification is not appropriate because it would prevent investors from capitalizing on the superior return that can result from a concentrated holding of the stock of one successful company.

4. When you are considering to start a business, the most important consideration is whether the venture will result in value creation, which can be determined by estimating the __________ of the venture. That is, you must compare the initial investment with the expected discounted cashflow over the life of the business. For example, if you are considering to open a cafe in Beppu, which would require an initial investment of 5,000,000 yen, you will need to earn an annual cashflow of at least __________ yen (in units and no 1000 separators) if you believe that the appropriate discount rate is 20%, and assume that there is no opportunity for growth.

5. When you are valuing a company, the usual methodology is to forecast near-term cashflows based on available information and use the ___________ formula beyond that to estimate the terminal value. For example, if you forecast that a company would earn $1.0 million, $1.1 million, $1.2 million, $1.3 million and $1.4 million for five years in that order, expect 10% growth thereafter and use a discount rate of 18%, the present value of the company as it currently operates would be $____________ million (one decimal place).

Thank you