Which benefit is shared by both monopolies and oligopolies?

Determine whether each statement describes the income effect, the substitution effect, or neither. Assume that all other variabl

ra1l [238]

Answer: See explanation

Explanation:

Income effect is when the demand for a particular good or service changes because the real income of the person has changed.

Substitution effect arises when there is a reduction in the sales for a good or service due to a price rise and therefore the consumers have switched to a cheaper alternative. For example, if the price of beef rises, the consumers may shift and purchase more of chicken.

Based on the above scenario, the following will then be:

• The price of lobster doubles, making Henri feel less wealthy. As a result, Henri buys fewer lobsters.

Income effect

Henry's real income has changed, he has more money and hence reduces the purchase for lobsters because he sees it as inferior good.

• The price of chicken falls by $0.75 a pound. Since chicken is now relatively less expensive than ground beef, Mary buys more chicken and less beef.

Substitution effect

Mary has moved to a cheaper alternative in this situation.

• The average price of a DVD falls by 15 percent. Tom buys more DVDs because his monthly movie budget can now stretch further.

Income effect

• Model Planes Incorporated reduces production of its wooden plane product line.

No effect

No effect here as it's neither income effect not substitution effect.

• Jessica sees that the price of orange juice is higher this week. She decides to buy less orange juice and more apple juice because orange juice is relatively more expensive.

Substitution effect

7 0

4 years ago

Professor jennings claims that only 35% of the students at flora college work while attending school. dean renata thinks that th

hodyreva [135]

The data iuse
<span>use a 5% level of significance. Very yes</span>

4 0

3 years ago

At an output level of 18,500 units, you have calculated that the degree of operating leverage is 2.10. The operating cash flow i

zysi [14]

Answer:

1.99; 2.22

Explanation:

Given that,

At output level of 18,500 units,

Degree of operating leverage = 2.10

Operating cash flow = $44,000

For solving this question we need to follow the following relationship between the degree of operating leverage and earnings before interest and taxes and the contribution margin:

Degree of operating leverage = Contribution margin ÷ operating income

2.10 = Contribution margin ÷ $44,000

2.10 × $44,000 = Contribution margin

$92,400 = Contribution margin

Now, we can get the total fixed costs by simply multiplying the contribution margin with the number of units.

Total fixed costs = Number of units × Contribution margin

= 18,500 × $92,400

= $1,709,400,000

At an output level of 19,500,

Total fixed costs = Number of units × Contribution margin

New Contribution margin = Total fixed costs ÷ Number of units

= $1,709,400,000 ÷ 19,500

= $87,662

Degree of operating leverage:

= Contribution margin ÷ operating income

= $87,662 ÷ $44,000

= 1.99

At an output level of 17,500,

Total fixed costs = Number of units × Contribution margin

New Contribution margin = Total fixed costs ÷ Number of units

= $1,709,400,000 ÷ 17,500

= $97,680

Degree of operating leverage:

= Contribution margin ÷ operating income

= $97,680 ÷ $44,000

= 2.22

3 0

3 years ago

Good Investments Company forecasts a $2.44 dividend for 2017, $2.62 dividend for 2018 and a $2.77 dividend for 2019 for Mountain

Ivan

Answer:

c.$29.37

Explanation:

First and foremost, it should be borne in mind that the intrinsic value of Mountain Vacations Corporation is the present value of its future dividends for the forecast period(2017-2019) plus the present value of dividend terminal value beyond the forecast period as shown thus:

Year 1 (2017) dividend $2.44

Year 2 (2018) dividend $2.62

Year 3 (2019) dividend $2.77

the terminal value of dividend=expected dividend per year after 2019/ cost of equity capital

expected dividend per year after 2019= $2.94

cost of equity capital =7%

terminal value=$2.94 /7%=$42.00

PV of future dividend=dividend/(1+cost of equity capital)^n

n is the year in which the future dividend is expected, it is 1 for 2017, 2 for 2018 , 3 for 2019 dividend and the terminal value(since the terminal value is already stated in 2019 terms)

intrinsic value of share=$2.44/(1+7%)^1+$2.62/(1+7%)^2+$2.77/(1+7%)^3+$42.00/(1+7%)^3

the intrinsic value of share=$41.11

It is obvious that the options are not correct

The question's inputs are wrong

2017 dividend should have been $1.74

2018 dividend should have been $1.87

2019 dividend should have been $1.98

dividend beyond 2019 should have been $2.10

terminal value=$2.10/7%=$30.00

intrinsic value of share=$1.74/(1+7%)^1+$1.87/(1+7%)^2+$1.98/(1+7%)^3+$30.00/(1+7%)^3

intrinsic value of share=$29.36(closest to c.$29.37)

6 0

3 years ago

The market consensus is that Analog Electronic Corporation has an ROE = 9%, a beta of 1.25, and plans to maintain indefinitely i

Gekata [30.6K]

Answer:

a. Stock Price is $10.60.

b. Trailing P/E ratio is 3.53, while Leading P/E ratio is 3.33.

c. Present value of growth opportunitiesis -$9.28.

d .Stock Price is $15.85.

Explanation:

The following are given in the question:

ROE = 9%

b = beta = 1.25

pr = Plowback ratio = 2/3 = 0.67

dpr = dividend payout ratio = 1- pr = 1/3 = 0.33

e0 = This year’s earnings per share = $3

mr = The coming year’s market return = 14%

tr = T-bills return = 6%

We can now proceed as follows:

a. Find the price at which Analog stock should sell. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The stock price can be calculated using the following formula:

P0 = Stock Price = d * (1 + g) / (r - g) …………………………. (1)

Where;

d = dividend per share = e0 / dpr = $3 / (1 / 3) = $1

g = Sustainable growth rate = ROE * pr = 9% * 2/3 = 0.06

rf = Risk free rate = Return on T-bills = 6%

b = Beta = 1.25

mr = Market return = 14%

r = Required return on Equity = rf + b * (mr - rf) = 6% + 1.25 * (14% - 6%) = 0.16

Substituting the values into equation (1), we have:

Stock Price = $1 * (1 + 0.06) / (0.16 – 0.06)

Stock Price = $1 * 1.06 / 0.10

Stock Price = $1 * 10.60

P0 = Stock Price = $10.60

b. Calculate the P/E ratio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Trailing P/E ratio = P0/E0 = $10.60 / $3 = 3.53

Leading P/E ratio = P0/e1 ………………………………………. (2)

Where;

e1 = e0 * (1 + g) = $3 * (1 + 0.06) = 3.18

Substituting the values into equation (2), we have:

Leading P/E ratio = $10.60 / 3.18 = 3.33

c. Calculate the present value of growth opportunities. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

P0 = e1 / r + pvgo …………………………………… (3)

Where pvgo denotes present value of growth opportunities, and P0, e1 and r are as already obatained in part a and b.

Substituting the values into equation (2) and solve for pvgo, we have:

$10.60 = $3.18 / 0.16 + pvgo

$10.60 = $19.875 + pvgo

pvgo = $10.60 - 19.875

pvgo = -$9.28

d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 1/3. Find the intrinsic value of the stock.

g = ROE * pr = 9% * (1 / 3) = 3%

dpr = 1 – pr = 1 - 1/3 = 2/3

d = dividend per share = e0 / dpr = $3 / (2 / 3) = $2

Stock Price = d * (1 + g) / (r - g) = $2 * (1 + 3%) / (0.16 – 3%)

Stock Price = $2 * (1 + 3%) / (0.16 – 3%)

Stock Price = $15.85

4 0

4 years ago