Question.3048 - 1. You are running a company that is owned by stockholders. Your goal is to maximize shareholder value. Explain how each of the following events is likely to affect shareholder value and identify uncertainties related to their effects. a. Tariffs on the product you sell are reduced and you face more foreign competition. b. Tariffs on several of the major inputs you use to produce your product are reduced. c. New pollution control requirements are implemented. d. Inflation rates rise. e. A new technology is available that reduces the cost of production. 2. Use the concepts of marginal cost and marginal revenue to derive an optimal capital budget for Company X, which has identified 7 possible investment projects and determined its cost of capital as shown below. Hint: Rank the projects according to the rate of return, and continue to invest as long as the ROI is greater than the cost of capital Table A: Alternative Projects, Required Investments, and Expected Rate of ReturnProject Investment Required in Millions of DollarsExpected Rate of Return on Investment A 150 12% B 300 15% C 125 10% D 75 16% E 50 20% F 500 14% G 250 18%Table B: Cost of Capital by Amount RaisedBlock of Funds (in Millions)Amount of Funds in BlockCost of Capital for BlockFirst Block of Funds $500 10% Second Block of Funds $400 11% Third Block of Funds $300 12% Fourth Block of Funds $200 13% Fifth Block of Funds $100 14% Sixth Block of Funds $100 15%3. Compare the three investments below in terms of their riskiness. What is the best way to evaluate the riskiness of an investment given the information you have on them?Project Expected Return Standard Deviation A $100,000 $25,000 B $200,000 $40,000 C $50,000 $20,0004. Find the derivatives of each of the following functions, and their points of maximization or minimization if possible. a. TC = 1500 - 100 Q + 2Q 2 b. ATC = 1500/Q - 100 + 2Q c. MC = -100 +4Q d. Q = 550 – 0.5 P e. Profits = -1500 +1200 Q – 4Q 2
Answer Below:
Answer xx have x Tariffs xx the xxxxxxx you xxxx are xxxxxxx and xxx face xxxx foreign xxxxxxxxxxx If xxx tariffs xx the xxxxxxx we xxxx have xxxxxxx thus xxxxxx more xxxxxxx competition xxx profit xx that xxxxxxx would xxxx reduce xxx due xx this xxx income xxxxxxxxx to xxxxxxxxxxxx would xxx down xxxxxxx a xxxxxxx in xxx shareholder x wealth xxxxxx b xxxxxxx on xxxxxxx of xxx major xxxxxx you xxx to xxxxxxx your xxxxxxx are xxxxxxx Due xx this xxx overall xxxx of xxxxx manufactured xxxxx come xxxx causing xxx profit xxxxxx to xxxxxxxx Due xx this xxx net xxxxxx available xx shareholder xxxxx increase xxxxxxx an xxxxxxxx in xxxxxxxxxxx s xxxxxx growth x New xxxxxxxxx control xxxxxxxxxxxx are xxxxxxxxxxx New xxxxxxxxx control xxxxxxxxxxx would xxxxxxxx cost xx curb xxxxxxxxx and xxx to xxxx the xxxxxx margin xxxxx go xxxx causing x reduction xx shareholder x wealth x Inflation xxxxx rise xxxxxxxx in xxxxxxxxx would xxxxxxxx the xxxx of xxxxxxx and xxxx in xxxx would xxxxxx the xxxxx of xxx company xxx at xxx same xxxx the xxxxxxxxxxx s xxxxxx e x new xxxxxxxxxx is xxxxxxxxx that xxxxxxx the xxxx of xxxxxxxxxx This xxxx reduce xxx cost xx production xxx this xx turn xxxxx increase xxx profit xxxxxx causing xx increase xx shareholder x wealth xxxxxx First xx all xx Rank xxx the xxxxxxxx as xxx the xxxxxxxx Rate xx Return xxxx the xxxxxxx having xxxxxxx return x e x gets xxxx and xxx company xxxxxx lowest xxxxxx i x C xxxx rank xxx looking xx the xxxx table xxxxx shows xxx rate xx Interest xx which xxx company xxxxx raise xxxxxxx We xxxx company xxxxx raise xxxxxxx at xxxx of xxxxxxx the xxxxxxx would xxxx the xxxxxxxxxxx that xxx most xxxxxx possible xxx with xxxxxx more xxxx or xxxxx to xxxxxxxxx the xxxxxxx would xxxxxx project x project x project x and xxxx of xxxxxxx B xxxxx this xxx company xxxxx raise xx cost xx capital xx fund xxxxxxx B xxx part xx project x and xx the xxx it xxxx raise xx to xxxx rest xx project x Now xx the xxxxxxx the xxxx project xx Project x which xxxxx an xxxxxxxxxx of xxxxxxx and xxxxxxxx a xxxxxx of xxxxx is xxxx than xxx cost xxxx the xxxxxxx will xxx invest xx any xxxxxxx projects xxx coefficient xx variation xxxxxxxxxx the xxxxx of xxx standard xxxxxxxxx to xxx mean xxx it xx a xxxxxx statistic xxx comparing xxx degree xx variation xxxx one xxxx series xx another xxxx if xxx means xxx drastically xxxxxxxxx from xxxx other xxx formula xxx co xxxxxxxxx of xxxxxxxxx isIn xxx investing xxxxx the xxxxxxxxxxx of xxxxxxxxx allows xxx to xxxxxxxxx how xxxx volatility xxxx you xxx assuming xx comparison xx the xxxxxx of xxxxxx you xxx expect xxxx your xxxxxxxxxx Thus xx can xxx the xxxxx the xx efficient xx variation xxx better xxxx risk- xxxxxx tradeoff xxxxxxxxxxxxxxx ReturnStandard xxxxxxxxxxx A x C xxxx above xx have xxxxxxxxxx co xxxxxxxxx of xxxxxxxxx and xx see xxx the xxxx is xxxxxxxxxx with xxxx investment xx be xxxx Given xxxx a xx have xxxxxxxxxx of xxxx equation xx b xx have xxxxxxxxxx of xxx equation x We xxxx Derivative xx the xxxxxxxx d xx have xx Derivative xx the xxxxxxxx e xx have xxxxxxxxxx of xxx equation xxx cost xxxxxxxxxxxx and xxxxxx maximization xx Or xx Answer xxxxx that xxxxx A xxxxxxxxxxx Projects xxxxxxxx Investments xxx Expected xxxx of xxxxxx Project xxxxxxxxxx Required xx Millions xx Dollars xxxxxxxx Rate xx Return xx Investment xxxx A x C x E x G xxxxx B xxxx of xxxxxxx by xxxxxx Raised xxxxx of xxxxx Amount xx Funds xxxx of xxxxxxx for xxxxx in xxxxxxxx in xxxxx First xxxxx of xxxxx Second xxxxx of xxxxx Third xxxxx of xxxxx Fourth xxxxx of xxxxx Fifth xxxxx of xxxxx Sixth xxxxx of xxxxx We xxxx First xx all xxxxxxx would xxxxx million xx cost xx capital xxx company xxxxx fund xxx investments xxxx has xxxx return xxxxxxxx and xxxx return xxxx than xx equal xx Therefor xxx company xxxxx choose xxxxxxx E xxxxxxx G xxxxxxx D xxx part xx project x After xxxx the xxxxxxx would xxxxx at xxxx of xxxxxxx to xxxx project x and xxxx of xxxxxxx F xxx at xxx end xx will xxxx at xx fund xxxx of xxxxxxx F xxxxx that xxxxxxx Expected xxxxxx Standard xxxxxxxxx CV x B x Hence xx can xxx that xxxxxxx C xxx highest xxxx per xxxx of xxxxxxMore Articles From Economics
.ico)
.ico)
.ico)
