The ability to forecast cause and effect is crucial for a solid economic model since it enables it to both explain past events and foresee potential future ones.
A model of the economy's importance
Its main goal is to describe and examine the prices and volume sold in a market that is competitive. In relation to price and other factors, the equations of the model define the level of supply and demand (for example, income).
What conclusions do economic models draw?
A simplified representation of reality, an economic model enables us to observe, comprehend, and forecast economic phenomena. A model's goal is to simplify a complex, real-world scenario so that only the most important elements remain.
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Answer:
d. decrease the firm's WACC.
Explanation:
As per WACC formula
WACC = ( Weight of Common Equity x Cost of Common Equity ) + ( Weight of Common Debt x Cost of Common Debt x ( 1 - Tax rate ) ) + ( Weight of Preferred Equity x Cost of Preferred Equity )
By assuming the values to prove the answer
Weights
Common equity = 55%
Preferred Equity = 15%
Debt = 30%
Costs
Common equity = 15%
Preferred Equity = 8%
Debt = 12%
Tax rate is 15%
Placing values in the formula
WACC = ( 55% x 15% ) + ( 30% x 12% x ( 1 - 15% ) ) + ( 15% x 8% )
WACC = 8.25% + 3.06% + 1.2% = 12.51%
Keeping others values constant, Now increase the Tax rate to 25% and placing vlaues in the formula
WACC = ( 55% x 15% ) + ( 30% x 12% x ( 1 - 25% ) ) + ( 15% x 8% )
WACC = 8.25% + 2.7 + 1.2% = 12.15%
Hence the WACC is decreased from 12.51% to 12.15% when the tax rate is increased from 15% to 25% keeping other values constant.
The actual correct answer is A railroads
Answer:
$60,000 income tax benefit
Explanation:
Since Crimson Corp. had a loss from operations and sold the asset for a loss we know that they lost money with the asset and an income tax benefit was generated. To calculate the income tax benefit we need to add both losses: $40,000 (operation) + $160,000 (sale) = $200,000 in total losses.
$200,000 x 30% = $60,000 income tax benefit
Answer:
The future value of the $200 invested yearly for 4 years at 8% is $973.32
Explanation:
The future value of an immediate annuity is given by the formula = (1+r)*[P*((1+r)^n-1)/r]
P=is the periodic payment of $200
r=rate of return=8 percent
n=number of years=4
By slotting the variables into the formula we have:
Fv=(1+0.08)*(200*((1+0.08)^4-1)/0.08)
FV=$973.32
Judging by the concept of time value of money, it is expected that the sum invested at interest would have been much more at maturity of the investment as $1 today should give a lot more than $1 in future.
