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Author Question: In evaluating the required rate of return for equity financing of a capital project, the Beta value ... (Read 145 times)

londonang

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on: Jul 1, 2018
In evaluating the required rate of return for equity financing of a capital project, the Beta value is
 
  A) the expected rate of growth in a firm's profits.
  B) the expected future value of a firm's stock.
  C) the volatility in the rate of return on a firm's stock compared with the volatility in the rate of return on a market portfolio of stocks.
  D) None of the above

Question 2

Q = K1/2L1/2 w = 2, r = 2 The firm would like to know the maximum output that can be produced for 8,000.
 
  Find the combination of inputs that maximizes output for a cost of 8,000, the amount of output that can be produced, and identify the expansion path.


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poopface

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Reply #1 on: Jul 1, 2018
Answer to Question 1

C

Answer to Question 2

MPL = 1/2 K1/2L-1/2
MPK = 1/2 K-1/2L1/2
Optimization requires:
MPL/w = MPK/r
This results in K=L, which is the equation of the expansion path.
TC = 8,000 = 2L + 2K
Substitute the expansion path relationship to yield:
K = L = 2000
Then Q = K1/2L1/2 = 2000.


londonang

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Reply 2 on: Jul 1, 2018
Great answer, keep it coming :)

ricroger

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

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