A perfectly competitive firm currently producing 100 units of output has ATC= $6 and AFC = $4. The market price is $3 and is equal to MC. Is the firm currently operating in the short-run or the long-run? Explain why. Discuss if the firm is currently maximizing profits (or equivalently minimizing losses)? Explain if shutting down the business in this current situation would be beneficial for the firm. If firms break even in the long run and earn zero economic profits, would they stay in the business? Explain why.

Harris Corporation is an all-equity firm with 100 million shares outstanding.  Harris has $250 million in cash and expects future free cash flows of $85 million per year. Management plans to use the cash to expand the firm’s operations, which will in turn increase future free cash flows by 15%. If the cost of capital of Harris’ investments is 12%, how would a decision to use the cash for a share repurchase rather than the expansion change the share price?   

A perfectly competitive firm currently producing 100 units of output has ATC= $6 and AFC = $4. The market price is $3 and is equal to MC. Is the firm currently operating in the short-run or the long-run? Explain why. Discuss if the firm is currently maximizing profits (or equivalently minimizing losses)? Explain if shutting down the business in this current situation would be beneficial for the firm. If firms break even in the long run and earn zero economic profits, would they stay in the business? Explain why.?

Suppose that I paid $2,000 for 100 shares of Enlighten Software Solutions on April 4, 1999. Today, the company is worth only 15 cents per share. Suppose that in order to be listed on a particular exchange, it must be priced at $1.50 (or above).

a. What sort of corporate reorganization can the firm conduct to achieve the minimum listing price, holding all else constant?

b. If the firm takes your advice in part (a), how many shares would I own?

Question-4: BBB is a clothing retailer with a current share price of $10.00 and with 25 million shares outstanding. Suppose that BBB announces plans to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares. Suppose that BBB pays corporate taxes of 35% and shareholders expect the change in debt to be permanent. Assuming that capital markets are perfect except for the existence of corporate taxes, what should be the number of shares outstanding after the share repurchase? YOUR SOLUTION:  

Suppose a US investor wants to invest in the foreign exchange market by buying a foreign currency today and selling it in a year. The following information is available to him:

In dollars, how much does a big mac cost in Japan and in Mexico? Show your work.

Explain the concept of the Big Mac Index. Which currency is over-valued? Which is under-valued?

You enter into a short position in one gold futures contract worth $500 per ounce. Contract size is 100 ounces. The initial margin is $2,500 per contract and the maintenance margin is $1,500 per contract.

1. How much will the price of gold have to change for you to receive a margin call and will it need to increase or decrease?

2. What is your initial margin deposit?

3. . If the market closes at $497.50 per ounce at the end of the day, what is the balance on your margin account?

The demand function for some product is given by Q = 100-10p. It costs $1 to produce one unit of this good and fixed costs of production are zero.

(a) Calculate equilibrium prices and industry output for two market structures: when this market is supplied by a large number of perfectly competitive firms and by a monopolist.

b) Now suppose that there are only two firms in this industry which compete in quantities. State the profit-maximization problem of each firm and and their optimum strategies. Calculate equilibrium price and output per firm.

Consider the three bonds quoted in the following table (settlement: 2/15/94). Calculate discount factors and spot rates at six-month intervals (d1, d2, d3 and y1, y2, y3), and implied six month forward rates (f1 and f2).