Author Question: In evaluating the required rate of return for equity financing of a capital project, the Beta value ... (Read 134 times)

londonang · **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.

poopface · **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.