Economics Answers

If the price level increases, the real value of household money holdings falls. This will result in a
downward shift of aggregate expenditures and a leftward shift of the aggregate demand curve.

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A couple borrows $10,000 to buy a car. The loan Agreement specifies that monthly payments are to be made for four years. The annual interest rate is 12 percent. Determine the monthly payment.

The Smith Construction Company borrows the entire cost of a new dump truck. The loan has an annual interest rate of 12 percent and calls for monthly payments of $ 1,000 over a five year period. What is the cost of truck.

A corporate bond specifies that interest of $400 is to be paid every six months for 20 years, and then the $1,000 principal or face value of the bond also will be paid. The market interest rate for bonds of this quality is 10 percent per year. What is the market value of this bond?

A loan Agreement specifies that a payment of $133.33 are to be made each month for five years. the annual interest rate specified is 6 percent. What is the amount of loan?

Micro Spin offs Inc, issued 20-year debt a year ago at par value with a coupon rate of 9%, paid annually. Today, the debt is selling at $1050. If the firm's tax bracket is 35%, what is its after tax cost of debt?

1. Micro spinoffs also has preferred stock outstanding. The stock pays a dividend of $4 per share, and the stock sells for $40. What is the cost of preferred stock?

2. Suppose Micro Smirnoff's cost of equity is 12.5%. What is the WACC if equity is 50%, preferred stock is 20% and debt is 30% of total capital.

1.Government often use a sales tax to raise tax revenue,which is the tax per unit times the quantity sold.Will a specific tax raise more tax revenue if the demand curve is inelastic or elastic at the original price?Explain

2.In tabular form,differentiate between positive and normative economic analysis.Give an example in each case.

3.Explain why for many goods,the long-run price elasticity of supply is larger than the short -run elasticity.

Karina loves buying shoes and going out to dance.Her utility function for pairs of shoes,S,and the number of times she goes dancing per month,T,is

U(S,T)=2ST so MUs =2T and MUt =2S

It cost Karina N$50 to buy a new pair of shoes or to spend an evening out dancing.Assume that she has N$500 to spend on clothing and dancing.

a)Show the equation for Karina's budget line and draw the budget line with T on the vertical axis (label the slope and intercepts)

b)What is Karina's marginal rate of substitution (MRS)?Explain

c)Solve mathematically for Karina's optimal bundle.

d)Show how to determine this bundle in a diagram using indifference curves and budget line

Royal Company is considering the introduction of new equipment which cost $95,000. The equipment has useful life of four years and is in the three years property class for tax purposes. Shipping and installation charges are $5000. Machine has expected salvage value of $16500. No additional networking capital is needed. The new equipment will generate additional net operating cash flows before the depreciation and taxes as follows

Time Year 1 Year 2 Year 3 Year 4
Net Cash Flows 34000 37000 56000 35000

if the machine tax rate is 30%, calculate

1) The initial Cash flow
2) Interim incremental net cash flow
3) terminal year end incremental net cash flows (depreciation percentages 33.33%, 44.45%, 14.81% and 7.41%)

Royal Company is considering the introduction of new equipment which cost $95000. The equipment has useful life of four years and is in the three years property class for tax purpose. Shipping and installation charges are $5000, machine has expected salvage value of $16500. N additional net working capital is needed. The new equipment will generate additional net operating cash flows before depreciation and taxes as follows

Time Year 1
Net Cash Flows 34000