The Ascent of Money: Risky Business<br> 1. Why do people buy insurance?

Winter's Toyland has a debt-equity ratio of .57. The pretax cost of debt is 8.2 percent and the required return on assets is 14.

True [87]

Answer:

Explanation:

We solve using the Weighted average cost of capital assuming a tax rate of 0% as we have to ignore taxes. Hence, we get:

$WACC = K_e(\frac{E}{E+D}) + K_d(1-t)(\frac{D}{E+D})$

Ke 0.14700

Equity weight 0.43

Kd 0.082

Debt Weight 0.57

t 0

$WACC = 0.147(0.43) + 0.082(1-0)(0.57)$

WACC 10.99500%

6 0

3 years ago

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A bank has $400 in checkable deposits, $800 in savings deposits, $700 in time deposits, $900 in loans to businesses, $300 in out

sergij07 [2.7K]

Answer: $400

Explanation:

M1 money supply simply refers to the monies which are liquid like the checkable deposits, traveler's checks, and the coins and currencies that are in circulation.

Therefore, based on the information given in the question, the bank's deposits that are part of M1 will be the $400 in checkable deposit.

3 0

2 years ago

Maddy works at Burgers R Us. Her boss tells her that if she stays with the company for five years, she will receive a bonus of $

Sergeu [11.5K]

Answer:

$4,038

Explanation:

Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows.

Present Value = Future Value x (1/ ( 1 + interest rate ) ^ number of periods)

Present Value = 6,000 x (1/ ( 1 + 0.08) ^ 5)

Present Value = 6,000 x 0.68058

Present Value = $4,038

4 0

3 years ago

An investment project has annual cash inflows of $2,800, $3,700, $5,100, and $4,300, for the next four years, respectively. The

lubasha [3.4K]

Answer:

Discounted payback period = 1.89 years

Explanation:

If Initial cost is $5,200

Year Cash flow Present value Present value Discounted

at 11% Cumulative cash flow

0 -5,200 1 -5,200 -5,200

1 2,800 0.9009 2,523 -2,677

2 3,700 0.811 3,003 326

3 5,100 0.73126 3,729 4,055

4 4,300 0.6587 2,833 6,887

Discounted payback period = 1 + (2,667/3003)

=1.89 years

Working

PV= (1+i)^-n

i= 11%, n= respective years 0,1,2,3,4

6 0

3 years ago

Assume for Guatemala that the domestic price of coffee without international trade is higher than the world price of coffee. Thi

Marina CMI [18]

Answer:

other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will import coffee.

Explanation:

This question is incomplete. Please check the attached image for a complete question.

A country has comparative advantage in the production of a good or service If it produces the good or service at a lower opportunity cost when compared to its trading partners.

The price of Guatemala's coffee is higher when compared to the world price of coffee without international trade. It shows that Guatemala doesn't have a comparative advantage in the production of coffee. Guatemala should stop producing coffee and import instead. This would enable Guatemala focus more resocurces on the production of good for which it has comparative advantage.

I hope my answer helps you

3 0

3 years ago

The Ascent of Money: Risky Business 1. Why do people buy insurance?