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tiny-mole [99]
3 years ago
10

You are considering acquiring a firm that you believe can generate expected cash flows of $10,000 a year forever. However, you r

ecognize that those cash flows are uncertain. a. Suppose you believe that the beta of the firm is 0.4. How much is the firm worth if the risk-free rate is 4% and the expected rate of return on the market portfolio is 11%
Business
1 answer:
Alecsey [184]3 years ago
6 0

Answer:

PV or value of the firm = $147058.8235

Explanation:

To calculate the worth of the firm, we first need to determine the required rate of return of this firm. Using the CAPM equation, we calculate the required rate of return to be,

r = rRF + Beta * (rM - rRF)

Where,

  • rRF is the risk free rate
  • rM is the return on market

r = 0.04 + 0.4 * (0.11 - 0.04)

r = 0.068 or 6.8%

As the firm is expected to generate a constant cash flow forever, it can be treated as a perpetuity. To calculate the value of the firm, we use the present value of perpetuity. The formula for present value of perpetuity is,

PV = Cash flow / r

Where,

  • r is the required rate of return

PV or value of the firm = 10000 / 0.068

PV or value of the firm = $147058.8235

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Y_Kistochka [10]

Answer:

$19,002.77

Explanation:

The computation of the value of deal is shown below:

The value of the deal = Sales revenue - purchase cost

where,

Sales revenue is

= 2,300,000 ÷ 25.49 koruna per dollar

= $90,231.46

And, the purchase cost is

= 2,800,000 ÷ 39.31 baht per​ dollar

= $71,228.69

So, the value of the deal is

= $90,231.46 - $71,228.69

= $19,002.77

hence, the value of the deal is $19,002.77

6 0
3 years ago
The economy is in short-run equilibrium when __________. a. aggregate demand intersects short-run aggregate supply. b. short-run
s2008m [1.1K]

Answer:

A. aggregate demand intersects short-run aggregate supply

Explanation:

Short run occurs when the amount a firm wishes to supply is equal to the amount demanded from the consumers. It is the area on the graph where the aggregate demand curve intersect with the short run supply curve.

Or, simply put, when the aggregate output supplied is equal to the aggregate output demanded. The equilibrium is made up of equilibrium prices and quantity.

5 0
3 years ago
Consider the following five situations. In which situation would a borrower be best off and in which situation would a lender be
umka2103 [35]

Answer:

The borrower is best off in situation <u>"a"</u> and the lender is best off in situation ▼  "C" .

Explanation:

Considering all the situations given in the options, the <u>borrower</u> is best in situation <u>a</u> and <u>lender</u> is best off in situation in <u>c</u>.

<u>Part a </u>

Real Interest rate = Nominal Interest rate - Inflation rate = 14 - 17 = -3 per cent. Thus, the purchasing power of money has fallen and the person has to pay back money with little purchasing power as compared to the value of the purchasing power at the time he borrowed money. Thus, borrowers are best off.Thus, <u>borrower</u> is best off when the inflation rate is very high.

<u>Part c</u>

Inflation rate is negative, thus the purchasing power of money will increase and lenders will get back money with higher purchasing power as compared to the value of the purchasing power of money at the time he lend the money. Thus, <u>lender </u>is best off when inflation rate is lowest.

5 0
3 years ago
Telephone companies and electric utilities were among the last businesses to start actively using public relations.
melomori [17]

Answer:

your answer would be false

hope this helps

:)

6 0
3 years ago
Read 2 more answers
Zhao Co. has fixed costs of $429,000. Its single product sells for $187 per unit, and variable costs are $122 per unit. If the c
otez555 [7]

Answer:

$635,000 and : 34%

Explanation:

Margins of safety is the difference between expected sales and the break-even point.

For Zhao, expected sales are 10,000 units

The break-even points in units = fixed cost/ contribution margin per unit

fixed costs = $429,000

Contribution margin per unit = selling price - variable costs per unit

=$187 -  $122

=$65

break-even point in units = $429,000/$65

break-even point = 6600 units

Margin of safety = 10,000 - 6600 units

=3400 units

In dollars is equal to margin of safety in units x selling price

=3400 x 187

<u>=$635,000</u>

as a percent of expected sales.

=3400/10000 x 100

=0.34 x 10,000

=34%

4 0
2 years ago
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