Forum Replies Created

Viewing 10 posts - 31 through 40 (of 44 total)
  • Author
  • in reply to: Finance Questions #16018

    Solution – Holding Rate of return = (1+10%)^5-1
    = 77.15%

    in reply to: Finance Questions #16008

    Case 1

    (1+ (-).10) * (1+.30) ^2 = .90*1.96 = 1.521 = 15.21%

    Case 2

    (1+.30) * (1+(-).10) ^2 = 1.30*.81= 1.053 = 10.53%
    Case 1 is better off.

    in reply to: NPV IRR #15995

    NPV for Red Pig
    Cash outflow = 400
    Cash inflow = 250/(1+.09)1 + 300/(1+.09)2
    = 229.35 + 252.50
    = 481.86
    NPV = + 481.86 - 400 = - 81.86

    NPV for Caffeine Delight
    NPV = Present Value of Net Cash inflow
    Cash outflow = 200
    Cash inflow = 140/(1+.09)1 + 179/(1+.09)2
    = 128.44 + 150.66
    = 279.10
    NPV = Present value of Net Cash inflow
    = 279.10 – 200 = 79.10

    As per the NPV method we should opted for the red pig new energy drink.
    IRR Calculations
    IRR denotes that NPV = 0
    IRR of red pig is 23%
    IRR of caffeine Delight is 36%

    As in this condition we use to calculate the modified IRR also called the incremental IRR.
    Incremental IRR is calculated only o the incremental cash flows. That is extra cash inflows and cash outflows on the margin that result from choosing one project over another.

    0 = Cash outflow + cash Inflow C1/(1+i)1 + cash Inflow C2/(1+i)2
    0 = (-) 200 + 110/(1+i)1 + 121/(1+i)2
    Modified IRR = 9.5%

    So, the modified incremental IRR is greater than the cost of capital for red pig energy drink. Coca cola corporation should use the red pig energy drink.

    • This reply was modified 5 years, 8 months ago by amandeep kathuria.
    • This reply was modified 5 years, 8 months ago by amandeep kathuria.
    • This reply was modified 5 years, 8 months ago by admin.
    • This reply was modified 5 years, 8 months ago by admin.
    • This reply was modified 5 years, 8 months ago by admin.
    in reply to: General Equilibrium Analysis #15764

    Contract curve is the locus of all Pareto optimal allocations in a general equilibrium model. The allocations which are Pareto optimal for both consumer A and B can be found on the points where their indifference curves are tangent to each other. This implies that at the points of contract curve the indifference curves of consumer A and B must have same slope or in terms of economics, for Pareto optimal allocations, the marginal rate of substitution for A and B should be equal.

    For Pareto optimal allocations:

    To be points on contract curves the allocations should also be feasible. Thus, we also require the feasibility condition, which states that the sum of allocation of good i with A and B must be equal to the sum of endowment of good i with both A and B

    • This reply was modified 5 years, 9 months ago by amandeep kathuria.
    • This reply was modified 5 years, 9 months ago by amandeep kathuria.
    • This reply was modified 5 years, 9 months ago by admin.
    • This reply was modified 5 years, 9 months ago by admin.
    in reply to: What is a Financial Modelers main objective #15752

    Answer : C
    A Financial Modeler’s main objective when gathering internal information for a valuation is thorough analysis to gain an adequate understanding of the subject company’s operational management and earnings ability

    in reply to: What is Principles of Marketing #15721

    Marketing is defined as all the activities that are involved in the transfer of goods from producer or seller to consumer or buyer. It includes various activities like advertising, shipping, storing and selling. In other words we can say it is channelizing the gap between service and product providers to service and product seekers. Through this exchange process marketing seeks to satisfy the need of the people. It involves a whole lot of activities to find out what consumers want and then providing it for them. Every business organisation uses some marketing principles to maximize the marketing performance which is the ultimate goal of the organisation. Most business use marketing principles to successfully launch products in the market and hope for a grand success of the product. There are various marketing principles which an organisation can use but an effective marketing program is one which can identify consumer needs and preferences. Also the best marketing principle should help in determining how those needs can be fulfilled and also business organisation should know how much people will be willing to pay for the particular product because if producers have no idea about the willingness to pay of consumers for the particular product, he may keep too high prices and he will lose his share in the market. So proper survey and good marketing principles are must to sustain in this competitive world. Business organisation should always keep the customer satisfaction on priority because if the consumers are satisfied then there is no need of doing advertisement and without efforts they can sell a lot. Business organisations should not cheat consumers. They should provide them quality products at reasonable prices and it should not be like if they have sold out a product means they are done with it rather they should follow up the consumer and if they will be able to win the heart of a consumer then consumers will automatically do the advertisement task for the organisation and it will flourish.

    in reply to: What is Market failure? #15713

    This refers to those situations in which the market cannot function properly. It involves the cases of externality and public goods.

    Externality refers to that situation in which some economic activity is not taken into account by market. In other words, market does not exist for some activities. For example: pollution dumped into river. There are two types of externality: positive and negative.

    Let’s first discuss negative externality. It refers to that situation in which one economic agent affects other’s activity without involving any price mechanism or market. For example: consider a person Bart who manufactures steel and his firm is located near a river. He disposed all garbage in that river. As river does not belong to anyone, he does not add cost of that factor. Thus, while taking output decision, he overproduces output. There is another person, Lisa who is fisher and fishes in the same river. Pollution affects her activity, but since there is no property right, she can’t be compensated for that pollution through market mechanism.

    Whenever there is negative externality, there is overproduction. Reason is that the producer does not consider the marginal damage it cost to other individual. In the above case, if firm’s optimum output would be based on social cost i.e. private cost + marginal damage. Then, output produced would be optimum.
    market failure image 1
    There are various methods to solve negative externality. There are some private response and some public response. In private response, there are established property rights, mergers, social convention.

    In property right, one person is assigned property right, and then the other party pays to use the resources. Suppose Bart possess property right, then Lisa will pay him to not to produce. If Lisa possesses property right, then Bart will pay to dump the garbage. On the other hand, when mergers take place, firm internalize the externality and thus maximize the total profit.

    In public response, we have pigouvian taxes, subsidies etc. under pigouvian taxes, government impose a tax equal to marginal damage at the efficient output. Thus, it increases the cost of firm and firm automatically produces that level of output.

    Positive externality: in this, one economic agent increases other’s firm productivity. If one firm conduct researches, then it provide other firm to either use that new technique to reduce their cost or give them some bases to further conduct research. These are the examples of positive externality.
    market failure image 2
    Public goods- these are non- rival and non- excludable. Non rival implies that the good is available even after it is used by another individual. This means that consumption by one individual doesn’t affect other individual consumption of the same commodity. Non- excludable implies that there is no price mechanism which could stop anyone to use that good. This means that we cannot exclude any individual to use that god whether he pays or not.

    These two properties of public good make provision of these goods by government. As goods are non excludable, it becomes questionable that how the revenues for provision of public good to be collected. This also cause free rider problem. As the individual knows that once the good is provided, everyone will be given. So, it is better to not to pay for it. Thus, the government finances these goods through tax revenues. But, it does not distribute the burden among individuals efficiently.

    So, these are two cases of market failure.

    in reply to: What is the opportunity cost of seeing Eric Clapton? #15704

    Ans: (c) The opportunity cost of seeing Eric Clapton is $10 (which is the extra benefit that a person gets on seeing Dylan), since it is the benefit of next best alternative foregone. On seeing Clapton, the person foregoes a benefit worth $10, which is therefore the opportunity cost.

    Answer: According to the law of diminishing returns, the proportionate increase in inputs leads to an increases in output, which is less than proportionately.

    Among the given options, only (a) is consistent with the law of diminishing returns.

    in reply to: Price Elasticity of demand #15680

    Answer: (A) Food is an inferior good. For inferior goods, the income elasticity of demand is negative, implying that the quantity demanded of inferior good declines as income increases. Since expenditure (P*Q) on food is declining, even though the prices of food have not declined, it means that the demand for food has declined with rise in income.

Viewing 10 posts - 31 through 40 (of 44 total)