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Skillet Industries has a debt–equity ratio of 1.5. Its WACC is 9 percent, and its cost of debt is 5.5 percent. The corporate tax rate is 35 percent. What is the company’s cost of equity capital? What is the company’s unlevered cost of equity capital?
Define adverse selection in a general way and then provide a more specific definition of adverse selection in an insurance market and explain how adverse selection manifests itself and becomes a problem in insurance markets.
A contractor is looking at purchasing a new piece of construction equipment. He can either buy it now or two years from now. The cost is $68,000 if purchased now. If purchased in two years, it will cost $81,000. Assume i = 10%/year and inflation f = ..
Visualize you are a manager for good or service used. From results of the deterioration equation, recommend strategies to either preserve demand if an increase over 3 periods occurs or improve demand
Consider the following system of simulataneous equation system in “supply and demand form”: y1 = γ1 + α2 y2 + β1z1 + u1 y2 = γ2 + α1 y1 + β2z2 + u2 (i) Is the above system identified? Show this using the order-condition for identification.
Suppose Chen has demand Q = 40 – 2P for streetlights and Abby has the demand Q = 10 – (1/2)P for streetlights. The cost of building each streetlight is $19. How many streetlights are socially optimal? Compare this socially optimal quantity with the q..
Bargaining can be viewed strategically, as a game of chicken where the ability to commit to a position allows a player to capture the lion’s share of the gains from trade. Do you agree with this concept? What have you observed about bargaining situat..
The price of cotton rises. What happens in the market for cotton shirts?
determine what would happen to total revenue if a firm raised its price in each elasticity range identified.
During the third quarter of 1997, Japanese GDP was falling at an annual rate of over 11 percent. Many blamed the big increase in Japan's taxes in the spring of 1997, which was designed to balance the budget. Explain how an increase in taxes with the ..
Does a monopolistic competitor produce more or less output as compared to an efficient level of production? Explain. What are the benefits and drawbacks of this? Should the government intervene to alter this?
Monetarists believe there's a direct link between the money supply and prices, real GDP, and employment. If the money supply is allowed to grow at a predictable rate, the economy will stay in balance. In effect, they feel that in the long-run, the ec..
GDP is broken down into categories of Consumption, Investment, Governement Expenditures, and Net Exports. What role did each category play in the recent recession and subsequent recovery?
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