PQ exam 1

# PQ exam 1 - ECON 303 Practice Questions for Exam 1 1...

This preview shows pages 1–2. Sign up to view the full content.

ECON 303 Practice Questions for Exam 1 1. Suppose a firm’s current profit is \$80 million, the interest rate is 6%, and the expected growth rate of the firm’s profit is 5%. a. What is the value of the firm if it continues for 3 years? ( Answer: \$315.5 million ) b. What is the value of the firm if it continues for ever? ( Answer: \$8,480 million ) c. What is the value of the firm on the ex-dividend date if it pays it current profit as dividend and continues for ever? ( Answer: \$8,400 million ) 2. Suppose a firm’s current profit is \$50 million and interest rate is 4%. a. What is the value of the firm if it continues for 3 years with no growth in profit? ( Answer: \$188.8 million ) b. What is the value of the firm if it continues for 3 years with 3% annual growth in profit? ( Answer: \$197.1 million ) c. What is the value of the firm if it continues for ever with 3% annual growth in profit? ( Answer: \$5,200 million ) 3. Suppose total benefits and total costs are given by B(Y) = 90Y - 4Y 2 and C(Y) = 5Y 2 . a. What is the marginal benefit? ( Answer: 90 - 8Y ) b. What is the marginal cost? ( Answer: 10Y ) c. What is the value of Y that maximizes net benefits? ( Answer: 5 ) d. What is the maximum level of net benefits? ( Answer: 225 ) 4. Suppose total benefits and total costs are given by B(Y) = 50Y - 6Y

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 3

PQ exam 1 - ECON 303 Practice Questions for Exam 1 1...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online