what effect would each of the following have on the value of the firm? (a) A...

what effect would each of the following have on the value of the firm? (a) A new advertising campaign increases the sales of the firm substantially. (b) A new competitor enters the market. (c) The production department achieves a technological breakthrough that reduces production costs. (d) The firm is required to install pollution - control equipment. (e) The workforce votes to unionize. (f) The rate of interest rises. (g) The rate of inflation changes.

Solutions

Expert Solution

a) A new advertising campaign increases the sales of the firm substantially.

Its revenue and profit increases, as a result overall value of the firm will increase.

b) A new competitor enters the market.

The sales and revenue will decrease, so overall value of the firm will decrease.

c) The production department achieves a technological breakthrough that reduces production costs.

The profit will increase and the value of the firm will increase.

d) The firm is required to install pollution- control equipment.

The Cost will increase and profit decrease, the overall value of the firm will decrease.

e) The workforce vote to unionize.

The Salary will increase and the overall value of the firm will decrease.

f) Rate of interest rises.

The Value of the firm will increase.

g) The rate of inflation changes.

According to the change in inflation, the value of the firm will increase or decrease.

Rahul Sunny answered 1 year ago

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