Should all small businesses have websites and utilize social media
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Answer:
The profit maximizing output level declines by 2.5 units and the price rises by $100.
Explanation:
In a monopoly market the inverse demand curve is given as,
P = 1,200 - 40Q
The marginal cost of production of the last unit is $200.
The total revenue is
=
=
The marginal revenue of the last unit is
=
= 1,200 - 80Q
At equilibrium the marginal revenue is equal to marginal price,
MR = MC
1,200 - 80Q = 200
80Q = 1,000
Q = 12.5
Putting the value of Q in the inverse demand function,
P =
P = $700
Now, if the marginal cost rises to $400,
At equilibrium the marginal revenue is equal to marginal price,
MR = MC
1,200 - 80Q = 400
80Q = 800
Q = 10
Putting the value of Q in the inverse demand function,
P =
P = $800
Answer:
a)
Cost of debt (after tax) = 5.4%
Cost of preferred stock () = 10.53%
Cost of common stock () = 16.18%
b)
WACC = 14%
c)
project 1 and project 2
Explanation:
Given that:
Debt rate () = 9% = 0.09
Tax rate (T) = 40% = 0.4
Dividend per share () = $6
Price per share () = $57
Common stock price ()= $39
Expected dividend () = $4.75
Growth rate (g) = 4% = 0.04
The target capital structure consists of 75% common stock (), 15% debt (
), and 10% preferred stock (
)
a)
Cost of debt (after tax) =`
Cost of debt (after tax) = 5.4%
Cost of preferred stock () =
= 10.53%
= 10.53%
Cost of common stock () =
= 16.18%
b)
WACC = 14%
c) Only projects with expected returns that exceed WACC will be accepted. Therefore only project 1 and project 2 would be accepted