Q17 in terms of a normal profit which of the

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Chapter 7 / Exercise 4
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Q17 In terms of a normal profit which of the following statements are TRUE? 1. The ‘risk free loan’ is a bank deposit or buying a government bond 2 . The ‘risk premium’ compensates the investor for taking on the risk associated with the business. 3. The risk premium will vary depending on the nature of the business. 4. Government bonds of all countries are considered 'risk free'. A) 1 and 2 B) 1, 2, and 3 C) 1, 3, and 4 D) all the above statements are correct E) 2, 3 and 4
Q18 If the rate of a riskless loan is 5% and the risk premium is 10%, and assuming the rate of annual inflation is 2.5%, an investment of £500,000 should return an annual normal profit of:
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Chapter 7 / Exercise 4
Exploring Microeconomics
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E) £87,500 Q19 An owner of a small firm wishes to retire and therefore decides to sell their business. Declared (and audited) net profits for the last 3 years have remained very stable at £65,000 pa. Industry analysts suggest that the rate of normal profit (or the rate of return on capital employed – ROCE), for this line of business, should be 12% (assuming bank rates are 5%). Based on these historical profits alone, how much is this business worth to another new investor/owner?
Q20 In terms of 'activist shareholders' which of the following statements is incorrect 1. An activist shareholder uses an equity stake in a corporation to put public pressure on its management. 2. The goals of activist shareholders range from financial (e.g. increase of shareholder value) to non-financial (disinvestment from particular countries, adoption of environmentally friendly policies, etc.). 3. The attraction of shareholder activism lies in its comparative cheapness; a fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign. 4. Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, litigation, and negotiations with management. 5. Due to the increasing popularity of the internet, smaller shareholders have also gained an outlet to voice their opinions.
Lecture No. 3; Managing Business Costs Q21 The statements below refer to explicit costs, all of them are TRUE except which one? A) Explicit costs are those the firm incurs from using resources it does not own. B) Explicit costs are identified by the bills and invoices presented to the firm by its suppliers. C) For shareholders the directors fees would be included in the firm's explicit costs. D) Repayment of any business debt would not be included in explicit costs. E) Explicit costs relate directly to the costs of production, but would not include business rates and insurances etc.

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