Chapter 7

Question 1

What are the two basic issues of finance?

Answer 1

1. Capital budgeting decision
2. Financing decision

Question 2

What is the capital budgeting decision?

Answer 2

1. Collection
2. Revenues
3. Profits
4. Choice
5. Assets

Question 3

What is the financing decision?

Answer 3

1. Significant
2. Exceed
3. Investment
4. Ground
5. Best

Question 4

Define horizontal mergers

Answer 4

1. Similar
2. Economies of scale
3. Exploit
4. Inefficiencies

Question 5

Define vertical mergers

Answer 5

1. Different
2. Control
3. Process
4. Co-ordination
5. Complementary

Question 6

Define conglomerate mergers

Answer 6

1. Majority
2. Unrelated

Question 7

Define behavioral finance

Answer 7

1. Variety
2. Mental biases
3. Decisions
4. Psychology
5. Drive

Question 8

Define prospect theory

Answer 8

1. Daniel Kahneman and Amos Tversky (1979)
2. Decisions
3. Risk and uncertainty
4. Alternative
5. Asymmetric

Question 9

Framing

Answer 9

1. Presented
2. Wording
3. Enormous
4. Answer

Question 10

Loss aversion

Answer 10

1. Sensitive
2. Losses
3. Magnitude

Question 11

Myopic loss aversion

Answer 11

1. Less
2. Multi-period
3. Frequency
4. Reporting period

Question 12

Mental accounting

Answer 12

1. Separate
2. Difficult
3. Netting
4. Series
5. Individual

Question 13

Rationality

Answer 13

1. Receive
2. Information
3. Update
4. Baye’s law
5. Maximise

Question 14

Herding

Answer 14

1. Attention
2. Decisions
3. Observe