FBE 421 Prof. Briggs Problem Set #1
Please print out this document and clearly handwrite your answers to each of the questions below in the space provided. Show all your work accordingly. A. Calculate LTM (a) Revenue and (b) Net Income for Costco Wholesale (COST) using their latest financial statements as of 3Q2011. 77946+60737-53821=84,862 MM Revenue 1303+984-871= 1,416 MM Net-income B. Calculate Costco’s LTM (a) EBIT and (b) EBITDA.

2077+1677-1389=2,365 MM EBIT (2077+795)+(1677+582)-(1389+549)= 3192 MM EBITDA Name: Student ID:
￼1.
￼C. Calculate Costco’s (a) Market Cap, (b) Total Debt and (c) Enterprise Value as of 3Q2011. a) 437,735,000 * 85.07 = 37.238 Bn
b) 1+900+1,247=2.148 Bn
c) 37.238+2.148+.578 (minority interest)-4.082= 35.882 Bn (35,882 MM) D. Calculate Costco’s (a) EV/Revenue and (b) EV/EBIT multiples. a) 35,882/84,862=.42x b) 35,882/2,365=15.17x
2. Explain the differences between a firm’s (a) market value, (b) enterprise value, and (c) book value. a) Market value, otherwise known as market capitalization, is the current value of the firm’s common equity on the open market. This is the value necessary to buy the entire firm’s equity. b) Enterprise value is the value of all the claims on the firm’s capital structure less cash. This includes the value of equity, preferred stock, debt, and minority interest less cash. This is the value necessary to purchase the entire firm. c) Book value is the value of a firm’s equity based on historical accounting cost. This value is taken from the balance sheet. 3. Given the assumptions below, calculate (a) equity value and (b) enterprise value. Assumptions

a) 50 MM * 20 = 1,000 MM
b) 1,000 + 25 + 250 – 50 +15 = 1,240 MM
($ in millions, except per share data; shares in millions)
Current Share Price $20.00 Fully Diluted Shares Outstanding 50.0 Total Debt 250.0 Preferred Stock 25.0 Noncontrolling Interest 15.0 Cash and Cash Equivalents 50.0 ￼
4.
($ in millions)
Income Statement
Selling, General &...

...Economics 370 Microeconomic Theory ProblemSet 6 AnswerKey1) Describe the effects on output and welfare if the government regulates a monopoly so that it may not charge a price above p, which lies between the unregulated monopoly price and the optimally regulate price (determined by the intersection of the firm’s marginal cost and the market demand curve).
As usual, the monopoly determines its optimal output on the basis of MR = MC. Here, however, it cannot charge a price in excess of p*. So, for any output less than Q(p*) (where Q(p) is the demand function) its marginal revenue is p*. On the graph below that gives:
pm p* MR
MC
Demand q
m
q
*
2) The inverse demand curve a monopoly faces is p=10Q-1/2. The firm’s cost curve is c(Q) = 10 + 5Q. Find the profit maximizing price and quantity, and economic profit for the monopoly.
Revenue = pQ = Q(10Q-1/2) = 10Q1/2 MR = 5Q-1/2 MC = 5 Profit maximization implies MR = MC, so 5Q-1/2 = 5, or Q* = 1; p* = 10. Economic Profit = Revenue – Cost = Q × p – c(Q) = 1(10) – (10 + 5Q) Economic Profit = 10 – 15 = -5. So, the monopoly will not produce at all, and will have a profit of zero.
3) The inverse demand curve a monopoly faces is p = 100 – Q. Find the profit maximizing price and quantity, and economic profit if: a) The total cost curve is c(Q) = 10 + 5Q....

...Selected answerkey for problemset1 Econ262
C1.2 (i) There are 1,388 observations in the sample. Tabulating the variable cigs shows that 212 women have cigs > 0.
(ii) The average of cigs is about 2.09, but this includes the 1,176 women who did not smoke. Reporting just the average masks the fact that almost 85 percent of the women did not smoke. It makes more sense to say that the “typical” woman does not smoke during pregnancy; indeed, the median number of cigarettes smoked is zero.
(iii) The average of cigs over the women with cigs > 0 is about 13.7. Of course this is much higher than the average over the entire sample because we are excluding 1,176 zeros.
(iv) The average of fatheduc is about 13.2. There are 196 observations with a missing value for fatheduc, and those observations are necessarily excluded in computing the average.
(v) The average and standard deviation of faminc are about 29.027 and 18.739, respectively, but faminc is measured in thousands of dollars. So, in dollars, the average and standard deviation are $29,027 and $18,739.
C1.3 (i) The largest is 100, the smallest is 0.
(ii) 38 out of 1,823, or about 2.1 percent of the sample.
(iii) 17
(iv) The average of math4 is about 71.9 and the average of read4 is about 60.1. So, at least in 2001, the reading test was harder to pass.
(v) The sample...

... Microeconomics (Fall 2014)
Simon Bowmaker
ProblemSet 6
Submit at lecture (Monday, November 10)
Write your answers on separate sheets of paper. Please include:
your name
your recitation teacher’s name
day and time of the recitation
NB: if your recitation takes place on Monday morning, you must submit your assignment to your teacher at the beginning of the recitation.
1. Assume a monopolist faces the following market demand: Q = 100 - 2P. The monopolist’s total cost function is TC = 5+8Q2. What is the monopolist’s profit-maximizing level of output and price?
Answer
Step 1. Derive the MR and MC functions.
Since Q = 100 - 2P, P = 50 – (Q/2)
TR=P*Q=(50-1/2Q)Q=50Q-1/2Q2
MR=dTR/dQ=50-Q
MC=dTC/dQ=16Q
Step 2. Set MR=MC and solve for P*, Q*
MR=MC
50-Q=16Q
Q*=2.94 or 3 (rounded)
P*=50-1/2Q*=50-1/2*3=48.5
2. Assume a monopolist faces a market demand curve P = 130 – 2Q, and has the short-run total cost function TC = 350 + 10Q.
(a) What is the profit-maximizing level of output and price? What are profits?
(b) Graph the marginal revenue, marginal cost, and demand curves.
(a) Step 1. Derive the MR and MC functions.
P 130 – 2Q
TR=P*Q=(130 – 2Q)Q=130Q – 2Q2
MR=dTR/dQ=130 – 4Q
MC= dTC/dQ=10
Step 2. Set MR=MC and solve for P*, Q*, and π.
MR=MC
130 – 4Q=10
4Q=120
Q*=30
P*=130 –...

...FIN532M: Financial Derivatives
ProblemSet 2
DUE DATE: Feb. 12, 2015
1. How can you differentiate the forward price from the value of a forward contract?
(2 points)
2. Explain why an FRA can be viewed as an exchange of a floating rate of interest for a fixed rate of
interest payments and how you can use FRA in mitigating risks.
(4 points)
3. The standard deviation of monthly changes in the spot price of live cattle is 1.2 cents per pound. The
standard deviation of monthly changes in the futures price of live cattle for the closest contract is 1.4.
The correlation between the futures price and the spot price changes is 0.7. It is now Feb 5 and a beef
producer is committed to purchase 200,000 pounds of live cattle on April 10. The producer wants to use
the May live-cattle futures contracts to hedge its risk where each contract is for the delivery of 40,000
pounds of live cattle. Answer the following:
a. Indicate the optimal hedge ratio.
(2 points)
b. Indicate if long or short and the optimal number of May contracts to be used.
(2 points)
4. An index is 1,200. The three-month risk-free rate is 3% per annum and the dividend yield over the
next three months is 1.2% per annum. The six-month risk-free rate is 3.5% per annum and the dividend
yield over the next six months is 1% per annum. All interest rates and dividend yields are continuously
compounded. Estimate the futures price of the index for six-month...

...ProblemSet1
Name: Christen Brown
ProblemSet1 is to be completed by 11:59 p.m. (ET) on Monday of Module/Week 2.
1. Based on the information provided for the market for video games, answer the following questions.
PRICE
Q DEMANDED
Q SUPPLIED
$50
5
9
$45
7
7
$40
9
5
$35
11
3
$30
13
1
a.) Draw and properly label the demand and supply graphs (this means you must label the axes and any lines you include on the graph).
b.) What is the equilibrium price and quantity?
a.)
b.) PRICE: $45.00 QUANTITY: #7
Now, assume that a new government report claims that video game play stimulates the brain.
c.) What will this do to the demand curve? Of the available list of things in the text that causes a change in demand, which best fits here as the cause of the demand shift?
d.) What will happen to the equilibrium price and quantity?
c.) With claims that the video game is stimulating, the demand curve will shift to the right. Of all the reasons for change in demand listed in our text, the one that best describes this situation is changes in consumer tastes and preferences. This fits most appropriately because it describes changes due to new information. In this situation with the video game, the government released new, positive information to the consumers, which increased demand.
d.) P: The price will increase. Q: The equilibrium quantity...

...73-240 | Recitation A
ProblemSet1Problem1: Nominal GDP, Real GDP, Price Indices, and Inflation
A. Nominal GDP in Year 1 = $430
Nominal GDP in Year 2 = $617.50
Growth Rate of Nominal GDP = 44%
B. RGDP(1) in Year 1 = $430
RGDP(1) in Year 2 = $410
RGDP(1) growth = -4.65%
RGDP(2) in Year 1 = $655
RGDP(2) in Year 2 = $617.50
RGDP(2) growth = -5.73%
The answer differs depending on which base year you use because the relative prices of the goods in comparison to each other (price of coffee in relation to price of donuts), and thus different ratios are being worked with depending on which year you choose, meaning the answer will be different.
C. Nominal GDP in Year 1 = $430
Nominal GDP in Year 2 = $617.50
RGDP(1) in Year 1 = $430
RGDP(1) in Year 2 = $410
GDP Deflator in Year 1 = $430/$430 * 100 = 100
GDP Deflator in Year 2 = $617.50/$410 * 100 = 150.6
Rate of Inflation = 50.6%
D. CPI(1) in Year 1 = $430/$430 * 100 = 100
CPI(1) in Year 2 = $655/$430 * 100 = 152.3
CPI Based Rate of Inflation = 52.3%
E. These are different because in C what you’re measuring is the change in quantities across years, and in D you’re looking at the change in prices...

...ProblemSet11. (Star Wars) Real GDP = 461.0(214.5/60.6) = 1,631.76
(E.T.) Real GDP = 399.9(214.5/96.5) = 888.90
(Titanic) Real GDP = 600.8(214.5/160.5) = 802.94
(Shrek 2) Real GDP = 437.2(214.5/188.9) = 496.45
(Avatar) Real GDP = 760.5(214.5/214.5) = 760.5
Real GDP in Order of Largest to Smallest
Movies
Nominal
Box Office Receipts (millions)
CPI in Year Released
Real Box Office Receipts (millions)
Star Wars (1977)
461.0
60.6
1,631.76
E.T. The Extra-Terrestrial (1982)
399.9
96.5
888.90
Titanic (1997)
600.8
160.5
802.94
Avatar (2009)
760.5
214.5
760.50
Shrek 2 (2004)
437.2
188.9
496.45
2. Classify each of the following as employed, unemployed, or not in the labor force.
a. Juanita has two part-time jobs but hopes to get one full-time job instead.
EMPLOYED
b. Bob teaches 1 class at the University at night and volunteers 20 hours a week at the hospital.
EMPLOYED
c. Jaime babysits her younger sister while her mother works.
NOT IN THE LABOR FORCE
d. Emma is retired. She volunteers at the library 10 hours each week.
NOT IN THE LABOR FORCE
e. Alex is 15 years old and hopes to find a part-time job soon but has not applied anywhere.
NOT IN THE LABOR FORCE
f. Rolando is not working but he has submitted an application to work at the local grocery store and is available to start work immediately.
UNEMPLOYED
3. Use the following data to calculate (a) the labor force participation rate, (b) the unemployment...

...ProblemSet1Problem1
Which project should the firm select? Why?
Project B: Managers should try to maximize their stock’s intrinsic value while also bringing in revenue. The P/E ratio shows the dollar amount investors will pay for $1 of current earnings.
Problem 2
If most investors expect the same cash flows from Companies A and B but are more confident that A’s cash flows will be closer to their expected value, which company should have the higher stock price? Explain.
The primary goal of a corporation should be to maximize its owner’s value. If a manager is to maximize shareholder wealth, he/she must know how that wealth is determined. Fundamentally, shareholder wealth is the number of shares outstanding at times the market price per share. A stock’s price at any given time depends on the cash flows a “marginal” investor expects to receive after buying the stock. With that being said, Company A’s cash flow would increase the stock price and the risk would be minimal. Management’s goal should be to make decisions designed to maximize the stock’s price.
Problem 3
The president of Southern Semiconductor Corporation (SSC) made this statement in the company’s annual report: “SSC’s primary goal is to increase the value of our common stock holders’ equity.” Later in the report, the following announcements were made:
a. The company contributed...