What is its expected economic profit

Assignment Help Business Economics

Reference no: EM13861813

AppsAlot is a small company that develops a variety of apps for smart phones. Management desires to raise $10 million in funds to initiate and continue various projects. With that funding, they project an earnings (net of all expenses except capital costs) stream of $800,000 per year.

(a) Management is considering borrowing the funds. Because AppsAlot is a relatively new and risky company, the interest on loans that lenders would charge is 12%. If it goes this route, what is its expected economic profit?

(b) Suppose instead that management decides to raise funds by issuing stock, which provides shareholders a claim on the net earnings of the company. Suppose that the market returns on stock for well-known, blue chip companies is 7%. Do you think investors would invest in a new company like AppsAlot with that same expected return? Suggest a return that they might require for such a new company and determine AppsAlot’s expected economic profit based on this.

Reference no: EM13861813

Questions Cloud

What are the advantages of using dynamic loading : Briefly describe the segmentation memory management scheme. How does it differ from the paging memory management scheme in terms of the user's view of memory - What are the advantages of using dynamic loading?

Write the neutralization reaction : Suppose you have 35.00 mL of phosphoric acid, and you do not know what it's concentration is. If you titrated it with a 0.733 M potassium hydroxide solution, and it took 42.50 mL of the base to neutralize the acid. what was the concentration of the p..

What is the appropriate criterion : A local restaurant initially estimated a large demand for dining in a space near a floor-to-ceiling fish tank. The cost of the tank is $8 million. Does this statement reflect the appropriate decision-making criteria? What is the appropriate criterion..

Condensation of one mole of water : One mole of H2O(g) at 1.00 atm and 100.°C occupies a volume of 30.6 L. When one mole of H2O(g) is condensed to one mole of H2O(l) at 1.00 atm and 100.°C, 40.66 kJ of heat is released. If the density of H2O(l) at this temperature and pressure is 0.996..

What is its expected economic profit : AppsAlot is a small company that develops a variety of apps for smart phones. Management desires to raise $10 million in funds to initiate and continue various projects. With that funding, they project an earnings (net of all expenses except capital ..

What is the concentration of nitric acid : A 20.00 mL sample of 0.1015 M nitric acid is introduced into a flask, and water is added until the volume of the solution reaches 250.00 mL. What is the concentration of nitric acid in the final solution?

Marginal cost function in the beer industry derives : An economy produces 2 goods soda a beer. Fully explain why the marginal cost function in the beer industry derives from the marginal benefits of the soda that is given up when beer is produced.

Rental rate of capital coupled with no change in wage rate : Explain, using the isoquant-isocost diagram, why a rise in the rental rate of capital coupled with no change in the wage rate will lead to a rise in the price of the capital-intensive good relative to the price of the labor-intensive good.

Calculate the volume occupied by 35.2 g : Calculate the volume occupied by 35.2 g of methane gas (CH4) at 25°C and 1.0 atm. (R = 0.08206 L*atm/K*mol)

User Account

All Pages