Part 1  In the constant growth formula, you can use the required rate of return on equity to determine the value of a share of stock. However, when you are computing the value of an investment project, you cannot assume the project is entirely funded by equity. Most businesses, and most projects, are funded with a combination of debt and equity financing. As a result, the discount rate for the project has to reflect the required rates of return for the debt holders and the equity holders. Analysts compute the weighted average cost of capital (the WACC) to value projects. The WACC is a weighted average of the required returns for the debt and equity holders, based on the proportions of debt and equity in the capital structure. In this discussion, you will practice calculating the WACC and interpreting its meaning and application. For the initial post, Calculate Optimus’ required rate of return on equity using the capital asset pricing model (CAPM). For the CAPM, use the following assumptions: Use a risk-free rate of 4.0%. Use 6.0% as the market risk premium. For the beta, use the beta below, according to the first letter of your first name First Letter of First NameBetaA through B0.30C through D0.40E through F0.50G through H0.60I through J0.70K through L0.80M through N0.90O through P1.00Q through R1.10S through T1.20U through V1.30W through Z1.40 Calculate the WACC for Optimus. As a reminder, Optimus is funded with 40% debt and 60% common stock; there is no preferred stock in the capital structure. The debt has an after-tax cost of 4%. Use the Optimus required rate of return on equity that you calculated using the CAPM. Explain why it is appropriate for Optimus to value the Electrobicycle project using its WACC. Compare using the WACC to using solely the cost of equity in valuing the Electrobicycle project. last name is JOHNSON  350 words  Part 2  “The use of debt to fund the firm (called leveraging) carries with it benefits as well as risks” (Hickman et all., 2013, Chap 8, Overview, para. 4). In the short term, leverage lowers the weighted average cost of capital due to the typically lower required rates of return on debt as compared to equity. In the long run, debt requires interest payments and the principal must be repaid. A firm that cannot repay its debt faces default risk and/or bankruptcy. The risks due to excessive leverage are known as financial risks. Thus, as a firm considers using debt or equity to fund its business, it must consider both the benefits of debt and the financial risks of too much debt. In this discussion, you will evaluate a real-world scenario and consider the implications of the debt financing decision for the firm. Watch the following video: (Links to an external site.) How Alex Clark Turned $32,000 Into a Chocolate Phenomenon - 30 Under 30 | Forbes (Links to an external site.) After watching the video, answer the following questions in your post: Did Alex Clark initially fund the business with equity or debt? Initially, Clark’s chocolate business is very small. Compared to publicly traded companies, would Clark’s required rate of return on equity be higher or lower than the “average” required rate of return on equity for small cap companies of 15%? Explain your answer. After the business was established, Clark talked about buying a building to expand. This is a good example of an investment project that a business must evaluate. Would the required rate of return for Clark’s building purchase be higher or lower than the overall chocolate company’s required rate of return? Explain your answer. Should Clark use some bank debt to finance all or a portion of the building purchase? Justify your answer by explaining how the weighted average cost of capital for the company would change if Clark uses bank debt to finance all or a portion of the building purchase. What is the primary risk that Clark faces if she uses debt to finance the entire building purchase? For purposes of this discussion, assume that the debt would then comprise 95% of the company’s capital structure.

Economic Models and Comparative Advantage 1. Your Assignment should have a cover sheet with the following information: ● Your Name ● Course Number ● Section Number ● Date 2. You may submit your Assignment using the Unit 2 Assignment template. 3. Your answers should follow APA formatting by being in double spaced paragraph format, with citations to your sources and, at the bottom of your last page, a list of references. Your answers should also be in Standard English with correct spelling, punctuation, grammar, and style. 4. Respond to the questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions. Your paper should be highly organized, logical, and focused. 5. Required Format: ● Correct APA format for answers (Title Page with name, course number, section number, unit number, date, answers double spaced, in Times New Roman 12-point font). Review the APA formatting found in the Writing Center. ● Correct citations within answers ● Standard English with no spelling or punctuation errors ● Correct references at the beginning of a new page at the end of your paper Questions: According to the author, economists approach economic problems with economic models, and these models will help familiarize you with how economists approach economic problems. The models also help explain how individuals and countries gain from trade. Accordingly, trade allows people to specialize in the production of goods and services for which they have comparative advantages and, then trade for goods and services that other people produce based on their comparative advantages. The Assignment questions deal with the application of the economic models and the roles of comparative advantage in the gains from trade. Watch the Chapter 2: “What Kinds of Roles do Economists Take on and Which is More Important?” video and the Chapter 3: “Outsourcing” video. Page 2 of 4 [BU204 | Macroeconomics] 1. Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade between individuals or countries? Is it absolute advantage or comparative advantage? Why? 2. Let us assume two students must prepare a presentation for their marketing class. As part of their class presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Larry 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Kate 12 hours to do the series of the calculations and 20 hours to prepare the PPT slides. a. How much time would it take the two students to complete the project if they divide the two tasks equally? b. How much time would it take the two students to complete the project if they use comparative advantage and specialize in calculating or preparing slides? c. If Larry and Kate have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides? 3. Let us assume there are only two countries in the world, and the two countries face the following production possibilities frontiers. Further assume that the two countries produce popcorn and peanuts. Country A’s Production Possibilities Frontier Country B’s Production Possibilities Frontier Page 3 of 4 [BU204 | Macroeconomics] a. Assume that country A and country B decide to use half of the resources in the production of each good. Indicate the points of the maximum output of each good on the graphs for each country as point A under such resource use. b. Assume the two countries choose autarky and do not trade. What would be the total world production of popcorn and peanuts under the autarky? c. Assume that each country decides to specialize in either popcorn or peanut based on its respective comparative advantage. Under the specialization, what is the total production of popcorn and peanuts? d. Assume country A and B decide to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country receives from trade. Label these points on the two graphs “B.” Page 4 of 4 [BU204 | Macroeconomics] Directions for Submitting Your Assignment Before you submit your Assignment, you should save your work on your computer in a location and with a name that you will remember. Make sure your Assignment is in the appropriate format (Microsoft Word), then, when you are ready, you may submit to the Dropbox. Unit 2 Assignment: Economic Models and Comparative Advantage Content and Analysis Points Possible Poi

250 words no specific format. 2 references. An interesting paradox called the “Paradox of Thrift” arises when households become concern about their future and attempt to increase their saving. As a consequence of such action the overall economy will suffer. Explain. Do you agree with this assessment?