Answer:
A.- DECREASE
B.- DECREASE
C.- INCREASE
D.- INCREASE
E.- INCREASE
Explanation:
a. The discount rate increases
DECREASE the discoutn factors will be higher therefore, the present values lower.
b. The cash flows are in the form of a deferred annuity, and the total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000
DECREASE Because the cashflow is generate on a longer period there is more exposure to discount rates.
c. The discount rate decreases
INCREASE The discount factor are lower. This situation is the opposite as (a)
d. The riskiness of the investment's cash flows <u>decreases</u>
INCREASE a lower risk derivates in lower cost of capital thus, lower iscount rates. This increase the present value of the cashflow.
e. The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years.
INCREASE as most of the future cash flows are at the beginning they have less exposure to time value of money.
Answer:
c. 5
Explanation:
L Q MPL (ΔinQ/ΔinL) VMPL
4 52
5 60 8 80
6 66 6 60
7 70 4 40
8 72 2 20
Note: Labour hired per day = L, Total product = Q, Marginal Product of labor=MPL, VMPL =Price*MPL
A firm will maximize the profit by increasing the number of labor as long as VMPL is higher than or equal to the wage rate. In this case, we observe that VMPL ($80)>wage rate ($75) for L=5 but VMPL ($60)<wage rate ($75) for L=6. So, the optimal number of labor to be hired is 5.
Answer:
Please see below
Explanation:
a. Current ratio
= Total current assets / Total current liabilities
= $262,787 / $293,625
= 0.89
b. Debt to assets ratio
= Total current liabilities / Total assets
= $293,625 / $439,832
= 0.67
c. Free cash flow
= Net cash provided by operating activities - Dividends - Capital expenditure
= $62,300 - $12,000 - $24,787
= $15,685
Answer:
Portfolio A and Portfolio B
Explanation:
In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
The Market rate of return - Risk-free rate of return) = Market risk premium
Let us assume the market risk premium be X
For Portfolio A:
21% = 8% + 1.3 × X
13% = 1.3 × X
So, the X = 10%
For Portfolio B:
17% = 8% + 0.7 × X
9% = 0.7 × X
So, the X = 12.86%
Based on the market risk premium calculations, we can conclude that Portfolio A should be in short position while Portfolio B should be in long position as portfolio B has higher market risk premium than B