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One of the reasons economists and managers want to understand a company’s economic profit is to determine the market value of a company. Understanding a company’s value is important for many reasons, one of which is to determine the company’s cost of capital. Why is determining a company’s cost of capital important? Consider this in the following discussion.
Review the opening case “Considering the Cost of Capital,” on page 312. Use the information from Chapter 19 to answer the following questions.
Please respond to all of the following prompts in the class discussion section of your online course:
1. What is the best way to measure a firm’s performance? Explain your reasoning.
2. Why do managers need to understand the difference between economic profit and accounting profit? Provide an example of economic vs. accounting profit from your own experience.
Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Kate's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. For the three individuals together,..
Suppose a consumer maximizes the utility function U=ln(xy) subject to the budget constraint 4x + 2y = 12. Find the consumption bundle (x*,y*) that maximizes utility for the consumer.
In which of the following situations is the Coase theorem likely to apply? Explain. The neighbor who lives below you in the apartment building loves to play old John Denver records at loud volume early in the morning. In fact, his favorite song seems..
Describe the difference between the short run and long run in the example to bringing about more tables for the customers. How is the restaurant able to differentiate between the short run and long run?
Calculate the trade balance among the U.S. also China for the period. Analysis by using appropriate examples.
Suppose that you have a business in which you hire five workers, to whom you pay $4 an hour. Suppose further that you have overhead costs of $100 a day and that you pay $1 in materials cost fo each item that your business manufactures. Assuming that ..
Suppose a closed economy decides to lower taxes (assume Ricardian equivalence does not hold), all else held constant. What will happen to savings, investment, and the interest rate? Show graphically what happens (be sure to label curves, axes, equili..
Jetways Airline flies passengers between New York and Miami, making one round-trip daily using a leased Boeing 737 aircraft. Consider the number of passengers served daily as the output for the airline. Identify each of the following costs as either ..
q1. suppose a consumer is at an optimum consuming 6 hamburgers a week at a price of 1.50 each and 10 donuts a week at
In the late 1990s, the U.S. economy experienced a period of extremely low inflation and extremely low unemployment. Use the AD/AS model to explain what sort of change in the economy would cause this. Include a graphical analysis in your answer, and p..
Let us suppose that the consumer is choosing between beer and milk. The consumer will always prefer beer to milk. However, if the consumer has two choose between two consumption bundles having equal amounts of beer and different amounts of milk, then..
Write down the equation for Uncovered Interest Rate Parity (UIP), and explain it. Why should UIP occur?
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