<span>The business cycle is the natural rise and fall of economic growth that occurs over time. The cycle is a useful tool for analyzing the economy. It can also help you make better financial decisions. </span>
Answer:
The equity for this firm is $32,540
Explanation:
<u>Using the accounting equation we can solve for the equity:</u>
assets = Liabilities + Equity
Equity = Assets - Liabilities
Now, we need to determiante the totals for assets and liabilities and sovle for equity:
Cash 31,800
Supplies 740
Equipment <u> 11,300 </u>
Total Assets 43,840
Liabilities 11,300
Equity = 43,840 - 11,300 = <em>32,540</em>
Answer:
a) i) 13.5% ii) risk on portfolio = 13.63%
b) Volatility of the portfolio (13.65%) is < Volatilities of the individual indexes
Explanation:
<u>A) Determine the return and risk of the portfolio</u>
i) Return [ E(r^p) ] = ∑ wi*ri ---- ( 1 )
where : wi = weight of stocks , ri = rate of return ( estimated ) N = number of stocks
Back to equation 1
E(r^p) = (0.5*14% ) + (0.5*13% ) = 13.5%
<em>ii) risk of portfolio </em>
we can determine the risk of portfolio using the equation below
Vol [ r( t + 1 , $ ) + s ( t + 1 ) ] ( volatility on Japanese equity ) = 13.63%
attached below is the remaining solution
<u>b) comparing the Volatilities </u>
Volatility of the portfolio (13.65%) is < Volatilities of the individual indexes ( i.e. volatility of US return ( 15.5% ) , Volatility of EAFE return ( 16.5% ) )
Answer:
The value of the firm or worth of the firm is $147058.82 rounded off to 2 decimal places
Explanation:
We first need to calculate the required rate of return for this firm that will be used as the discount rate in the valuation of the firm using the discounted cash flow methods.
Using the CAPM we can calculate the required rate of return as,
r = rRF + Beta * (rM - rRF)
Where,
- rRF is the risk free rate
- rM is the return on Market
So,
r = 0.04 + 0.4 * (0.11 - 0.04)
r = 0.068 or 6.8%
As the cash flows the firm can generate are expected to remain constant through out and they are generated after equal interval of time, this can be treated as a perpetuity.
The present value of a perpetuity is calculated as follows,
Present Value of perpetuity = Cash Flow / r
Present value of perpetuity = 10000 / 0.068
Present value of perpetuity = $147058.8235
So, the value of the firm or worth of the firm is $147058.82 rounded off to 2 decimal places
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