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A struggling company currently has a total value of $700,000. It owes $500,000 from debt financing (assume these are loans from the bank if you wish). The value of the company to the owners is the difference between the total value and the amount owed to the debt holders. What is the current value of the firm to the owners?
Now assume that a project is presented to the owners that results in a loss of the entire value of the company with a probability of 50% and results in a gain in value of $500,000 with probability 50% (resulting in a total value of $1,200,000). Show that this in expectation decreases the firm’s value, and explain why, in spite of that, the owners of the company would want to undertake the project.
You buy only apples and bananas. Your budget is such that you can purchase 3 apples and 4 bananas or 9 apples and 2 bananas. Write down the equation for the budget line with bananas on the y-axis. Is that equation unique?
Can you name some well known firms that we have heard about recently going out of business? What names come to mind? Some of the market structures we have seen are not realistic and some are realistic can you tell me more about it. How is that ? Why ..
What are the potential long term problems for unions in agreeing to labor-management cooperation programs?
Assume an economy with an aggregate production function of the form Y = 1.5K. If the nation’s population grows at 5%, the rate of depreciation is 3%, and the savings rate is 8%, what is the steady-state output per capita level?
Calculate the equilibrium interest rate by setting the demand for central bank money equal to the supply of central bank money.
Write a formula which describes the marginal product of labour in the short run as a function of the amount of labour used.
A group of 20 doctors are considering forming a new medical group also has asked you to prepare a report on whether they should build a facility in an area.
Assuming no change in demand, will the Fed need to increase or decrease the supply of Federal funds? By how much will the quantity of Federal funds have to change for the equilibrium to occur at new target rate?
If Starbucks introduces the world to premium blends, and demand rises substantially, illustrate what will happen in this market as it moves to a new equilibrium.
Write down equation that can be solved for yield to maturity of this bond: that is, equation that equates Current value of bond payments to cost of bond. Estimate Current value of bond when interest rate is 8%.
What rate of return would you expect on a 1 year treasury security, assuming the pure expectation theory is valid? use arithmetic average.
Assume only two countries, China and the US. If China decides to stimulate growth through a policy of running a large export trade surplus, does China’s national saving increase? Show the relationship between China’s national savings, domestic invest..
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