Suppose that a new labor law increases the minimum required number of paid vacation days for all full-time employees; illustrate
the effect of this by shifting the aggregate supply (AS) curve in the appropriate direction.
1 answer:
Answer:
The AS curve shifts to left.
Explanation:
If the minimum number of paid vacation days are increased, then it will increase the benefits of labor. Labor will be interested to join the work and the supply of labor will increase, reducing the cost of production and in turn cost of goods in which the labor was used.
Such a reduction in price, in turn, will reduce the aggregate supply, and so the aggregate curve will shift to left. The diagram illustrating the situation is attached.
The AS curve shifts to left.
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Answer:
Explanation:
Let's first determine the free cash flow of the firm
Particulars Years
1 2 3
EBIT 540 680 750
<u>Tax at 36% (0.36*540) (0.36*680) (0.36*750) </u>
Less: 345.6 435.2 480
Net Capital -
Spending 150 170 190
<u>Change in NWC 70 75 80 </u>
Less: 125.6 190.2 210
The terminal value at the end of T =(3 years) is:
= 2011.26
Finally, the value of the firm can be computed as follows:
Years Free Cash Flow PVIF PV
1 125.6 0.6589 107.88
2 190.2 0.7377 140.31
3 210 0.6336 133.06
<u>Terminal Value 2011.26 0.6336 1294.33 </u>
<u>Value of the firm ⇒ $1655.58</u>