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Explain how own-price elasticity of demand, price changes, and total revenue are related. Provide an example.
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Explanation & Answer
It is a measure used in economics to show the responsiveness or elasticity, of the quantity demanded of a good or service to change its price. Revenue is maximized when price is set so that price of elasticity is exactly one. Price elasticities are almost always negative, although analysts tend to ignore the sign even though this can lead to "ambiguity."
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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.
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DVU Apple Fixed Income Security Essay
Fixed-Income Security
Objectives
Students should familiarize themselves with bonds and preferred stock as an investment opportunity and as a source of funds. In this assignment, students will determine why a fixed-income security may be offered by a firm, what features it must have in order to be attractive to investors, and what kind of financial results were achieved. Balance sheet accounts as well as certain ratios are to be analyzed.
Final Project Guidelines
Students should select a company that has issued bonds in the last 3 years so that the information sources can provide sufficient financial data for analysis. The selection is subject to faculty approval: the company and bond chosen should be posted no later than Week 6 to the Q&A Forum where the professor will indicate approval/disapproval of the selection before research should commence.
Post the following:
Your company choice
The security chosen (select an individual bond, not a bond fund)
When that security was issued
The Final Project is made up of several sections, each listed below. Each section should be a minimum of one full page (excluding charts, graphs, etc.). You will submit your Final Project in Week 8.
Papers should be 8-12 written pages in length, 10-point font, and double spaced. The paper should include a cover page, table of contents, introduction, body of the report (Sections 1-5), conclusion, and works cited. Only the introduction, body, and conclusion count towards the page count. Graphs, tables, and appendices should be added when needed, however, these items are not part of the total page count.
Even though this is not a scientific-type writing assignment and is mostly creative in nature, references are still very important. At least three authoritative, outside references are required (anonymous authors or web pages are not acceptable). These should be listed on the last page titled "Works Cited."
Appropriate citations are required utilizing the APA standard.
All DeVry University policies are in effect, including the plagiarism policy.
Any questions about this paper may be discussed in the Q&A Forum.
This paper is worth 230 total points and will be graded on quality of research and paper information, use of citations, grammar, and sentence structure. See the grading rubric below.
Final Project
Introduction: (25 points) Please construct a comprehensive introduction that lays out your project.
Section 1: Company Background: (25 points) This section should include what industry the firm is in, its products, its competitors, and the stated main reason for needing capital (to fund receivables, capacity expansion, retire older debt, etc.). If you can't find a specific discussion about this, then use your judgment as to why you think the funds were needed and explain your reasoning.
Section 2: Balance Sheets: (25 points) What did the balance sheet look like in the quarter just prior to issuing the bonds? Include both a copy from before the issue and after the issue in an appendix to your paper. From the "Key Financial Ratios" link contained in the Week 2 Lesson, calculate Return on Equity (ROE), one debt ratio, and at least one other ratio of your choice both before and after the bonds were issued, and discuss what the results indicate and why you think they are important to your report.
Section 3: Trends in YTM and Price: (25 points) At what price and yield-to-maturity (YTM) was the initial offering sold? Tabulate the price and YTM of the issue at the end of each calendar quarter for the last six quarters. Then, plot the tabulated values to visualize the trends in YTM and prices. Add a brief discussion about your graph or chart and what the results indicate.
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Section 5: WACC: (25 points) Compute the firm's current Weighted Average Cost of Capital (WACC) assuming the total debt of the firm is in the issue that you analyzed. This means that if the company has more than one debt issue outstanding with a total face value of $X million and your chosen issue involves $Y million, then assume that all $X million is in your issue. This will simplify the calculations without diminishing learning value. Add a brief discussion about your calculations and what the results indicate.
Conclusion: (25 points) Based on your research in Sections 1-5, discuss at least three overall conclusions about this offering. In your conclusion, please recap your analysis so that a reader can draw upon your expertise in order to make an educated investment decision. The conclusion should draw together all that you have researched and analyzed and provide a well-supported investment recommendation.
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Most Popular Content
National University Executive Compensation Discussion
topic One: Executive CompensationSenior executives in many European firms are typically paid substantially less than the t ...
National University Executive Compensation Discussion
topic One: Executive CompensationSenior executives in many European firms are typically paid substantially less than the top executives in American firms. They also get paid differently. For example, stock options are much more common among American than European executives. Does this mean that American Executives are overpaid, or that the method of compensation in either market is sub optimal?
Ashford University Week 5 Mindfulness as a Human State Discussion Paper
Part 1
In the constant growth formula, you can use the required rate of return on equity to determine the value of a ...
Ashford University Week 5 Mindfulness as a Human State Discussion Paper
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.
UVI 369 Darden School of Business Krispy Kreme Doughnuts Inc Question And Answers
What can the historical income statements (case Exhibit 1) and balance sheets (case Exhibit 2) tell you about the financia ...
UVI 369 Darden School of Business Krispy Kreme Doughnuts Inc Question And Answers
What can the historical income statements (case Exhibit 1) and balance sheets (case Exhibit 2) tell you about the financial health and current condition of Krispy Kreme Doughnuts, Inc.?How can financial ratios extend your understanding of financial statements? What questions do the time series of ratios in case Exhibit 7 raise? What questions do the ratios on peer firms in case Exhibits 8 and 9 raise?Is Krispy Kreme financially healthy at year-end 2004?In light of your answer to question 3, what accounts for the firm's recent share price decline?What is the source of intrinsic investment value in this company? Does this source appear on the financial statements?
University of Massachusetts Globalization Discussion
After watching the video on globalization and reading the assigned Wall Street Journal article, "How to Lure Online Shopp ...
University of Massachusetts Globalization Discussion
After watching the video on globalization and reading the assigned Wall Street Journal article, "How to Lure Online Shoppers: Dubai Mall Touts Ski Slopes, Aquariums, Spas,"(in the files) discuss the ways in which globalization has affected your purchasing decisions in both purchases and in the method by which you shop. What informs your decisions? How does technology affect your decisions? Globalization (8:10)The world is becoming more and more interconnected. Globalization changes how people consume, work and live almost everywhere in the world. Today, many economic, political, cultural, or ecological relationships are not explainable from a national perspective. At the same time, a controversial debate about the consequences of globalization has begun.Please use the student's perspective to finish this dissicuission.300-500 words. THANK YOU!
4 pages
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DVU Apple Fixed Income Security Essay
Fixed-Income Security
Objectives
Students should familiarize themselves with bonds and preferred stock as an investment op ...
DVU Apple Fixed Income Security Essay
Fixed-Income Security
Objectives
Students should familiarize themselves with bonds and preferred stock as an investment opportunity and as a source of funds. In this assignment, students will determine why a fixed-income security may be offered by a firm, what features it must have in order to be attractive to investors, and what kind of financial results were achieved. Balance sheet accounts as well as certain ratios are to be analyzed.
Final Project Guidelines
Students should select a company that has issued bonds in the last 3 years so that the information sources can provide sufficient financial data for analysis. The selection is subject to faculty approval: the company and bond chosen should be posted no later than Week 6 to the Q&A Forum where the professor will indicate approval/disapproval of the selection before research should commence.
Post the following:
Your company choice
The security chosen (select an individual bond, not a bond fund)
When that security was issued
The Final Project is made up of several sections, each listed below. Each section should be a minimum of one full page (excluding charts, graphs, etc.). You will submit your Final Project in Week 8.
Papers should be 8-12 written pages in length, 10-point font, and double spaced. The paper should include a cover page, table of contents, introduction, body of the report (Sections 1-5), conclusion, and works cited. Only the introduction, body, and conclusion count towards the page count. Graphs, tables, and appendices should be added when needed, however, these items are not part of the total page count.
Even though this is not a scientific-type writing assignment and is mostly creative in nature, references are still very important. At least three authoritative, outside references are required (anonymous authors or web pages are not acceptable). These should be listed on the last page titled "Works Cited."
Appropriate citations are required utilizing the APA standard.
All DeVry University policies are in effect, including the plagiarism policy.
Any questions about this paper may be discussed in the Q&A Forum.
This paper is worth 230 total points and will be graded on quality of research and paper information, use of citations, grammar, and sentence structure. See the grading rubric below.
Final Project
Introduction: (25 points) Please construct a comprehensive introduction that lays out your project.
Section 1: Company Background: (25 points) This section should include what industry the firm is in, its products, its competitors, and the stated main reason for needing capital (to fund receivables, capacity expansion, retire older debt, etc.). If you can't find a specific discussion about this, then use your judgment as to why you think the funds were needed and explain your reasoning.
Section 2: Balance Sheets: (25 points) What did the balance sheet look like in the quarter just prior to issuing the bonds? Include both a copy from before the issue and after the issue in an appendix to your paper. From the "Key Financial Ratios" link contained in the Week 2 Lesson, calculate Return on Equity (ROE), one debt ratio, and at least one other ratio of your choice both before and after the bonds were issued, and discuss what the results indicate and why you think they are important to your report.
Section 3: Trends in YTM and Price: (25 points) At what price and yield-to-maturity (YTM) was the initial offering sold? Tabulate the price and YTM of the issue at the end of each calendar quarter for the last six quarters. Then, plot the tabulated values to visualize the trends in YTM and prices. Add a brief discussion about your graph or chart and what the results indicate.
Section 4: Rate of Return: (25 points) If you were one of the original investors in this issue and you had invested $10,000, what would your total return be if you sold the securities at today's market price? Compute the current duration of the bond and add a brief discussion about your calculations and what the results indicate.
Section 5: WACC: (25 points) Compute the firm's current Weighted Average Cost of Capital (WACC) assuming the total debt of the firm is in the issue that you analyzed. This means that if the company has more than one debt issue outstanding with a total face value of $X million and your chosen issue involves $Y million, then assume that all $X million is in your issue. This will simplify the calculations without diminishing learning value. Add a brief discussion about your calculations and what the results indicate.
Conclusion: (25 points) Based on your research in Sections 1-5, discuss at least three overall conclusions about this offering. In your conclusion, please recap your analysis so that a reader can draw upon your expertise in order to make an educated investment decision. The conclusion should draw together all that you have researched and analyzed and provide a well-supported investment recommendation.
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