Answer:
Option C It attempts to determine the retail price by using production costs as a base.
Explanation:
This approach helps in determining the retail price of the competitors that he is charging in the market. This gives a better insight to what the production costs are of the competitors.This information is very important for pricing decisions and for cost control strategy. This gives a better insight where we are and where we must be. So the option C is correct here.
<span>An effective production quota in the sugar market will give </span>marginal social benefit exceeds marginal social cost
Marginal social benefit refers to the value of benefit that the company will add to the society after producing addtional amount of goods. While marginal social cost refers to the value of expenditure that society have to pay if it received additional amount of production.
In this particular case, the increase in sugar production need to be match with the societal health issue it caused (such as overweight, heart problems or diabetes)
The characteristics that describe pure competition are:
- Many sellers involved in the competition and none of them had the power to influence the price.
- Buyers also couldn't influence the price.
- It is fairly easy to come and compete in the market
- The commodities that offered in the market are similar in type and price.
Answer:
a. The cost of equity is 5.538%
b.The cost of equity is 13.475%
Explanation:
a.
The DDM approach has several models that are used to calculate the price of the share. As the dividend growth is constant forever, we use the constant growth model of DDM to estimate the required rate of return or cost of equity as other variables are known.
The formula for price using the constant growth model is:
P0 = D0 * (1+g)/ r - g
Plugging in the value,
78 = [0.4 * (1+0.05)] / (r - 0.05)
78 * (r - 0.05) = 0.42
78r - 3.9 = 0.42
78r = 3.9 + 0.42
r = 4.32 / 78
r = 0.05538 or 5.538%
b.
The SML approach uses the risk free rate and market risk premium along with stock's beta to calculate the cost of equity or required rate of return.
The cost of equity using SML is:
r = 0.061 + 1.25 * (0.12 - 0.061)
r = 0.13475 or 13.475%