Question
In: Economics
Anthony has an income of $10,000 this year, and he expects an income of $5,000 next...
Anthony has an income of $10,000 this year, and he expects an income of $5,000 next year. He can borrow and lend money at an interest rate of 10%.
Consumption goods cost $1 per unit this year and there is no inflation.
Utility function is U(c1, c2)=4ln(c1)+2ln(c2)
a. How would his utility change if the interest rate goes up to 15%? Is he better off or worse off? Explain.
b. What about if there is a 10% inflation? Show how his budget constraint and his utility changes with a graph. A simple illustration is fine.
c.Graph his budget constraint and find his optimum bundle if the interest rate to borrow is 15% but return to his savings is 10% with no inflation.
d. Discuss the importance of financial markets and how they can improve our utility.
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
Suresh Co. expects its five departments to yield the following income for next year.
Suresh Co. expects its five departments to yield the following
income for next year.Dept. MDept. NDept. ODept. PDept. TTotalSales$89,000$47,000$85,000$73,000$48,000$342,000ExpensesAvoidable19,80048,40019,10024,00055,800167,100Unavoidable59,80024,6006,20059,70023,800174,100Total
expenses79,60073,00025,30083,70079,600341,200Net income
(loss)$9,400$(26,000)$59,700$(10,700)$(31,600)$(800)Recompute and prepare the departmental income statements (including
a combined total column) for the company under each of the
following separate scenarios.(2) Management eliminates departments with
sales dollars that are less than avoidable expenses.
A project has annual cash flows of $5,000 for the next 10 years and then $5,000...
A project has annual cash flows of $5,000 for the next 10 years
and then $5,000 each year for the following 10 years. The IRR of
this 20-year project is 13.58%. If the firm's WACC is 10%, what is
the project's NPV? Do not round intermediate calculations. Round
your answer to the nearest cent.
$ =
Project A requires an initial outlay at t = 0 of $1,000, and its
cash flows are the same in Years 1 through 10....
A project has annual cash flows of $5,000 for the next 10 years and then $5,000...
A project has annual cash flows of $5,000 for the next 10 years
and then $5,000 each year for the following 10 years. The IRR of
this 20-year project is 13.63%. If the firm's WACC is 12%, what is
the project's NPV? Do not round intermediate calculations. Round
your answer to the nearest cent.
$_________
1) IBM expects to pay a dividend of $5 next year and expects these dividends to...
1) IBM expects to pay a dividend of $5 next year and expects
these dividends to grow at 77% a year. The price of IBM is $85 per
share. What is IBM's cost of equity capital?
2) Since your first birthday, your grandparents have been
depositing $1,200into a savings account on every one of your
birthdays. The account pays 9%
interest annually. Immediately after your grandparents make the
deposit on your 18th birthday, the amount of money in your savings...
Suresh Co. expects its five departments to yield the following income for next year. Dept. M...
Suresh Co. expects its five departments to yield the following
income for next year.
Dept. M
Dept. N
Dept. O
Dept. P
Dept. T
Total
Sales
$
82,000
$
44,000
$
78,000
$
65,000
$
43,000
$
312,000
Expenses
Avoidable
17,300
45,400
18,000
21,500
51,300
$
153,500
Unavoidable
57,800
21,600
5,700
54,300
20,300
$
159,700
Total expenses
75,100
67,000
23,700
75,800
71,600
313,200
Net income (loss)
$
6,900
$
(23,000
)
$
54,300
$
(10,800
)
$
(28,600
)
$...
A motel has 30 rooms and expects 70% occupancy next year. • The owners’ investment is...
A motel has 30 rooms and expects 70% occupancy next year. • The
owners’ investment is 520,000, and they expect a 12% after tax
return on their investment.(Net Income) • The income tax rate is
24%. • The motel has two mortgages: the first in the amount of
$259,000 at a 10% interest rate and the second of $240,000 at a 14%
interest rate. • Present value of the building is $432,000 and the
depreciation rate is 5%. • The...
Anthony Johnson is a marketing executive with a substantial investment portfolio that he has built over...
Anthony Johnson is a marketing executive with a substantial
investment portfolio that he has built over the years from savings.
He owns shares in National Savings, a large local bank. A close
friend and golfing partner, John Stansfield, is a senior executive
at National. National has seen its stock price drop considerably,
and the news and outlook are not good. In a conversation about the
economy and the banking industry on the golf course, Stansfield
mentions that National will surprise...
A 2002 Income Statement for Anthony Industries, using a contribution margin approach, is shown below. Anthony...
A 2002 Income Statement for Anthony Industries, using a
contribution margin approach, is shown below. Anthony makes only
one product. 50,000 units were sold in 2002.
Data 1
Revenues $650,000
Variable Costs:
Manufacturing
costs $290,000
Selling
costs 130,000
Total variable
costs 420,000
Contribution
margin $230,000
Fixed Costs:
Manufacturing
costs $110,000
Administrative
costs 70,000
Total fixed
costs 180,000
Net Income (before
taxes) $50,000
Requirements: 2 points each part
Answer the following questions. Assume each situation is
independent.
a) Determine the break-even point
in dollars.
b) Determine the number of units
that...
Mr X has 50,000 dollar in a bond fund and expects that every year he will...
Mr X has 50,000 dollar in a bond fund and expects that every
year he will be able to save and add 12,000 dollars to the bond
fund. Assuming that the bond fund will give 7% return per year, how
much money will he have by the time of retirement (12 years).
17. Mr. Thomas has $210 income this year and $180 income next year. The market interest...
17.
Mr. Thomas has $210 income this year and $180 income next year.
The market interest rate is 5% per year. Mr. Thomas also has an
investment opportunity in which he can invest $70 this year and
receive $90 next year. Suppose Mr. Thomas consumes $90 this year
and invests in the project. What will be his consumption next
year?
$300
$358
$300
$322
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