*Define scarcity and opportunity cost. What role these two concepts play in the making of business decisions? Scarcity is a Ever-present situation in all markets whereby either less goods are available than the demand for them‚ or only too little money is available to their potential buyers for making the purchase. This universal phenomenon leads to the definition of economics as the "science of allocation of scarce resources." Opportunity cost is the cost of an alternative that must be
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Nike’s weighted average cost of capital (WACC) to be 8.3%. I find error in this calculation as a result of the following points of disagreement: a) Weighting of Capital Structure: Use of book values of capital rather than the market values b) Cost of Debt Calculation: Incorrect method for calculating debt c) Tax Rate: Use of a tax rate derived from the summation of state and statutory taxes instead of the firm’s marginal tax rate 2. Revised Calculation of WACC: WACC reflects the weighted
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goods that a firm is manufacturing is in direct connection with the marginal product. Sometimes‚ less is more and less employees using the right equipment and technologies are able to perform much efficient that a greater number of employees that are using old tools in their activity. . As you well said‚ marginal cost and marginal product are strongly connected. When the value of the marginal cost is dropping‚ the value of the marginal product is raising and vice-versa. The quantity of the inputs can’t
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The founder‚ who is Chair and CEO‚ W.B. “Bill” Yeats‚ is about to reach his 62nd birthday and does not have a succession plan. He is concerned with the future of his company as none of the other executives can take his place because they are all specialists. Bill Yeats believes that TSE can provide stability to Yeats as he is reaching retirement‚ and TSE is a larger company with better marketing and global distribution channels. However‚ he is concerned with the fit of the two companies even though
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Larry Stone wants to estimate the firm’s hurdle rate? Is it justifiable to use the firm’s weighted average cost of capital as the divisional cost of capital? Please explain. (10% weighting) Answer The hurdle rate is the rate of return a firm has to offer finance providers to induce them to buy and hold financial security. (Arnold‚2007). This is also known as cost of capital or weighted average cost of capital. The returns offered by alternative securities with the same risk influences the hurdle
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Full Cost Pricing Selling price arrived at by adding overheads and profit margin to the direct cost per unit of a product. In a manufacturer’s overheads computation‚ less than full capacity utilization of the plant is factored in to allow for fluctuations in the output. The profit margin is computed as a fixed percentage of the average total cost of the product. Pricing - full cost-plus pricing Full cost plus pricing seeks to set a price that takes into account all relevant costs of production
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The Cost of Capital Project: Internet Version {December 2009} By Wm R McDaniel‚ PhD Objective The assignment is to estimate the weighted average cost of capital (WACC) for an actual corporation as of the current time. Actual managers would need to know their company’s WACC as a starting datum to estimate the discount rate to use in the net present value analysis of new projects or of termination decisions. The student will later need to know the technique for application in some case
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“h=4” b. Marginal Revenue = Marginal Benefit [pic] c. Optimal profit from Problem #1 = 331 Current optimal profit = 371 The difference is due to the effect of Sheen’s effort on the demand. This relation is not surprising. Players in the different stages of a supply chain can increase demand for their product through efforts in advertisement‚ product development etc. Problem #3 a. Armentrout’s optimal stocking quantity is 516. b. Armentrout’s cost of overstocking
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the hotel assets‚ Marriott is able to increase its ROA thereby increasing potential profitability and its financial position in the market. Marriott also improves its efficiency as the general partner under long-term management contract because it can decrease useless expenses and guarantee a part of the partnership’s debt. The second financial strategy is investing in projects that increase shareholder value. Marriott uses the discounted cash-flow techniques to evaluate potential investments
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CHAPTER 9 THE COST OF CAPITAL (Difficulty: E = Easy‚ M = Medium‚ and T = Tough) Multiple Choice: Problems Easy: Cost of common stock Answer: d Diff: E [i]. Bouchard Company ’s stock sells for $20 per share‚ its last dividend (D0) was $1.00‚ and its growth rate is a constant 6 percent. What is its cost of common stock‚ rs? a. 5.0% b. 5.3% c. 11.0% d. 11.3% e. 11.6% Cost of common stock Answer: b Diff: E [ii]. Your company ’s stock
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