Decreases the firm value

Assignment Help Business Economics
Reference no: EM131465050

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.

Reference no: EM131465050

Questions Cloud

Produce an essay on use of statistics : MA508 Business Statistics Assignment. You are required to produce an essay on "Use of Statistics." Apply knowledge of related statistical techniques
Describe the transtheoretical stage of change the client : Describe the transtheoretical stage of change the client in the case study was in at the beginning of therapy session, and explain why.
Product differentiation affects the demand for product : Discuss the two ways that product differentiation affects the demand for the product. Give an original example of product differentiation.
Discuss the characteristics of the entrepreneur : Discuss the background of the entrepreneur (i.e. history, development, family and socio-cultural background) to see what developed his/her entrepreneurial.
Decreases the firm value : 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.
Compare potential advantages and disadvantage of the economy : A legal right is determined as unconditional and entitled without regard for financial resources, health insurance, or social status.
Government expenditures and government purchases : What is the difference between government expenditures and government purchases? How do the two variables differ in terms of their effect on GDP?
Us and mexican tomato producers : With the support of U.S. growers, the United States signed an agreement under NAFTA to establish a price floor on the price of tomatoes.
What about usb flash memory cards : The customer may want users to exchange data quickly. Are CDs or DVDs the way to go? What about USB flash memory cards? Or some kind of network storage?

Reviews

Write a Review

Business Economics Questions & Answers

  The sudden encroachment of the western powers

compare and contrast the different ways in which China and Japan responded to the sudden encroachment of the Western powers in the late 19th and early 20th centuries. What was the result for each country of their encounters with the Great Powers of W..

  The marginal revenue product

The marginal revenue product is:

  How much did lori save and what is here wealth at the end

lori is a student who teaches golf on the weekend and in a year earns $40,000 in fees after paying her taxes. How much did Lori save in 2009 and what is here wealth at the end of 2009?

  Explain the purpose of each performance measure

A recession? How would your decision change if your firm's plant and equipment needed to be replaced? What if plant and equipment were new?

  Opportunity cost of going to a movie premiere at theatre

Calculate your opportunity cost of going to a movie premiere at the theatre with your friend Spencer on Saturday night in the following scenarios. You have no other plans for the night, and Spencer is paying for your ticket. You have already bought y..

  Calculate the amount of the excise tax

Suppose that the demand curve for cigarettes is given by Qd = 50 ? P and the supply curve is given by Qs = P. The government wants to raise $300 in revenues by taxing the cigarette market. Calculate the amount of the excise tax required to accomplish..

  The annual market for florida oranges

The following graph shows the annual market for Florida oranges, which are sold in units of 90-pound boxes. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once ..

  Explain the argument and comment

Economists’ models generally produce solutions that allow polluters to continue polluting to some degree. Why do economists favor allowing some pollution to continue? Provide a simple model that yields that result, explain the argument, and comme..

  The main reason firms may exit a market

The main reason firms may exit a market is because of:

  Q the biggest difference between microsoft and software

q. the biggest difference between microsoft and software retailers is the market structure in which they operate.

  Continuing financial difficulties of their employers

In response to continuing financial difficulties of their employers, unions representing workers at U.S. automakers have accepted a two-tiered wage schedule, by which new hires are paid less than the standard union wage. How does this change affect t..

  Illustrate what will take place to provide as a result

If thousands of consumers begin buying MP3 players, illustrate what will take place to provide as a result.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd