Answer:
a. demand for existing shares of the stock and the price will both fall.
Explanation:
The stock price is formed by the interaction of supply and demand of companies's shares and when a news like this is released is expected that the future cashflows of that company will drop. Being share buyers rational actors, the demand for the company's shares will drop, therefore the price of the company will drop as well.
Answer:
d. 4 years
Explanation:
The formula to compute the payback period is shown below:
= Initial investment ÷ Net cash flow
where,
Initial investment is $200,000
And, the net cash flow = $50,000
Now put these values to the above formula
So, the value would equal to
= ($200,000) ÷ ($50,000)
= 4 years
All other information which is given is not relevant. Hence, ignored it
Answer:
Total $53.0656 (millions)
Explanation:
We will need to add the present value of the coupon payment
and the present value of the maturity date
<u>present value of the annuity:</u>
C= 60 million x 5% /2 1.5
time= 20 years 2 payment per year = 40
rate = 6% annual = 0.06/2 = 0.03 semiannually
PV $34.6722
<u>present value of the bonds:</u>
Maturity 60
time 40
rate 0.03
PV $18.3934
<u>The value of the bond will be the sum of both</u>
PV c $34.6722
PV m $18.3934
Total $53.0656
Answer:
Refer explanation
Explanation:
A. Average total cost (ATC) is the total cost divided by the number of units sold. It is unlikely to increase. This is especially because as more output is produced, fixed costs are spread over a larger number of units. Thus, the fixed cost per unit falls. The firm is also likely to exploit economies of scale (falling average costs due to rise in output). Thus, this is a decreasing cost industry.
B. The firm should charge $4 since the marginal cost i.e. the cost of producing an additional unit of output is $4. At this price, the firm would make a loss of $30 million since the price is enough only to cover the variable costs. It would not be able to cover the fixed costs of $30 million. The difficulty to make profits and the loss made would discourage the firm, causing it to exit the industry.
C. Profit = Total Revenue - Total Costs.
At price $5, total revenue = $5 x 30 million = $150 million. Total costs includes both variable and fixed costs. Fixed cost as provided is $30 million. Variable costs = $4 x 30 million = $120 million. Hence, total costs would be = $30 million + $120 million = $150 million. Profit/loss = $0 (150 million - 150 million). The firm is at the break-even point where TR is equal to TC and makes neither a profit nor a loss.
D. At 40 million bags demanded for $5, the total revenue would be = $5 x 40 million = $200 million. The total fixed cost would remain the same as provided in the question ($30 million). Total variable costs would now be $40 million x $4 = $160 million. Thus, the total costs are $160 million + $30 million = $190 million. Profit = $200 million (Total Revenue) - $190 million (Total Costs) = $10 million
E. The fair rate of return is the point where the economic profit is zero ($0). In order to identify the price, the costs are important. The firm’s fixed costs would remain as 30 million. The variable costs would be 40 million x $4 which is $160 million. The total cost would thus be $160 million + $30 million = $190 million.
It is important to then identity the total revenue. TR is equal to P x 40 million. This can then be substituted in the profit equation in order to obtain the price.
Profit = TR - TC
0 = 40P - $190 million
$190 million = 40P
P = $190 / 40
P = $4.75
