PQ exam 1

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

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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
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This note was uploaded on 12/01/2009 for the course ECON RFGS taught by Professor Dougdavis during the Fall '09 term at VCU.

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

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