Finance Answers

Draw Slutskey's decomposition of price effect into substitution and income effect in case of normal good

Using a simple example of your own, compare Coase’ and Pigou’s solutions to the externality problem? Which solution do you think is more suitable and why?

The redistribution of any single good (or factor) by the government guarantees that each and every commodity produced and consumed in the economy will be fairly distributed among members of society. Explain the logic of this argument in a 3x2x2 economy and its underlying assumption(s). What does the theorem imply about a 1x1x1 economy (A simple Robinson Crusoe world with no capital and only coconuts to eat).

The redistribution of any single good (or factor) by the government guarantees that each and every commodity produced and consumed in the economy will be fairly distributed among members of society. Explain the logic of this argument in a 3x2x2 economy and its underlying assumption(s). What does the theorem imply about a 1x1x1 economy (A simple Robinson Crusoe world with no capital and only coconuts to eat).

Using a simple example of your own, compare Coase’ and Pigou’s solutions to the externality problem? Which solution do you think is more suitable and why?

Powell, Inc. recently sold bonds having a $1,000 par value for $ 1,025. Floatation costs of $ 89.56 per bond reduced the net proceeds from the sale to $ 935.44 per bond. The bond pays $80 in annual year end interest and matures in 10 years. If the marginal tax rate is 34%, what is the after tax cost of bonds?

Faisal & Sons Company may buy Blood testing equipment costing $60,000. This equipment is expected to reduce labor costs of clinical staff by $20,000 annually. The equipment has a useful life of five years but falls in the three-year property class for cost recovery (depreciation) purposes. No salvage value is expected at the end. The corporate tax rate for Co. is 38 percent (combined federal and state), and its required rate of return is 15 percent. (If profits after taxes on the project are negative in any year, the firm will offset the loss against other firm income for that year.) On the basis of this information, what is the net present value of the project? Is it acceptable?

Ahmed & Co. is considering the purchase of a new piece of equipment to increase the production capacity. The equipment costs $100,000 plus $5,000 for installation and shipping. The resulting increased production is expected to require additional net working capital of $25,000. What is the initial investment that is required for this investment proposal?

Farrelly Enterprises has fixed operating costs of $500,000, variable operating costs per unit of $20, and a selling price of $40 per unit. It produces 40,000 units. Company has a $30,000 bond with a 10% coupon rate and it has issued 400 preferred shares with a $3 per share dividend payment. Farrelly also has 1000 outstanding shares of common stock and it falls in the 34% tax bracket.
a. Prepare an income statement showing the percentage change in EPS if sales increase by 10%. Calculate the Degree of Total Leverage using the percentage change formula.
b. Calculate the Degree of Operating Leverage and Degree of Financial Leverage using the direct formula.