DigiTek is a start-up company financed with 50% debt and 50% shareholders' equity. The debt outstanding is a zero-coupon bond which has a face value of $1,000,000 and a remaining maturity of two years. The following table presents a summary of the company's balance sheet (in book values): Net working capital $500,000 Total debt $1,000,000 Fixed assets $1,500,000 Net equity $1,000,000 Total assets $2,000,000 Total debt and equity $2,000,000 The company's total assets has a market value of $1,200,000. The annualized standard deviation of the asset value is 45%, and the risk-free rate is 3%. a) Calculate the market value of DigiTek's shareholders' equity. [8 marks] b) Calculate the value of DigiTek's outstanding debt.

Tescac's assets are worth $290. It has $175 of zero-coupon debt outstanding that is due tobe repaid at the end of two years. The risk-free interest rate is 5%, and the standard deviationof the returns on Tescac's assets is 40% per year.A. What is the value of the put option owned by shareholders?B. What is the value of the company's debt?

Consider a monopolist that faces the inverse market demand curve P = a - BQ where a > 0 and 3 > 0. The

monopolist's total costs can be described by C = 6QQ. Assume that 3> and that a> 6. Given this

information:

1. What is the monopolist's profit function, expressed in terms of Q?

2. Using your answer to (1), solve the firm's profit maximization problem for Q and then find the corresponding P using the demand function.

3. What is the economic significance of the assumption that B>y?

4. What is the economic significance of the assumption that a > 6?

5. Evaluated at the profit maximizing choice, what is the market price elasticity of demand? BONUS: Does this imply any other restrictions that need to be placed on the parameters?

Two countries called Carbon Lovers and the Really Crude are deciding their oil production levels for the year. Carbon Lovers and Really Crude are currently at war and are funding their war efforts through oil revenue. Let g denote the barrels of oil that Carbon Lovers produces and 92 denote the barrels of oil that Really Crude produces. It costs $10 to produce each barrel of oil. World demand for oil is given by the demand function Q(P) = 200 - 2P, where P is the price per barrel of oil. Part A (i) Which model that we have studied best represents the situation described in this problem. The Cournot model where firms set production levels simultaneously. (ii) How many barrels of oil will each country produce to maximize profit? How much profit will each firm carn? Note that the inverse demand function is P(Q) = 100-.5Q. Carbon Lovers has the profit maximiza tion problem max(100.5Q - 10) g Taking the first order condition, we find the best response function = 90.592. By symmetry, firm 2 will have the best response function q2 = 90-.59. Solving these two equations simultaneously yields 260. The market price is P-100-.5(60+60) - 40. Each firm earns 1800 (iii) Suppose Carbon Lovers and Really Crude sign a peace treaty and agree to cooperate. Each will produce the same number of barrels. How many barrels of oil would each sell to maximize their joint profit? How much profit does each earn? If Carbon Lovers and Really Crude collude, the profit maximization problem becomes max(100-.5Q - 10)Q Taking the first order condition, we find Q = 90, so each country will produce 45 barrels of oil. Total profit is (90-.5(90))90= 4050, so each country earns 2025.

1. What makes competition based on price different from other forms of competition? 2. If there is a limited quantity of an item available, is it necessarily scarce (in the economic sense)? Explain. 3. Robinson and Crusoe live alone on an isolated island. They each have endowments of fish and coconuts. Robinson is willing to trade one fish for six coconuts at the margin, whereas Crusoe is willing to trade one fish for eight coconuts at the margin. Is a trade possible that would make both Robinson and Crusoe better off? If so, who will buy what, and at what terms of trade (ie. price)? If trade does begin, when would it end? 4. Radio stations often give away "free" concert and movie tickets to listeners who call in at certain times. Since the listeners don't have to pay any money for the tickets, this implies that they aren't scarce. Do you agree? Explain. 5. Which of the following is a positive statement? a. Airbags should be required in cars. b. The graduation rate for student athletes at FSU is lower than at other ACC schools. c. Smoking is a disgusting habit. 6. The granting of "most favored nation" status to China will drastically lower tariffs and other trade barriers between the U.S. and China. As a result, what will happen to the volume of U.S. - China trade? Will American consumers likely gain or lose as a result? 7. Consumers often complain that the commissions charged by real estate brokers are "too high". The commission rate charged by brokers is usually 6 %. This would amount to $7,200 on the sale of a $120,000 home. a. What economic functions do brokers perform? b. What factors limit the amount brokers can charge for their services? c. What types of home sellers are most likely to sell their homes without the aid of a broker? 8. At a price of $1.89 per muffin, Mary buys 5 blueberry muffins per week. What does this tell us about Mary's marginal value schedule for blueberry muffins? 9. Give a "real life" example of when voluntary exchange trade is not efficient. 10. How does one judge if an economic theory is "good" or not?

Import Tariffs and Quotas In the 1980's the Australian government imposed quotas on the importation of cars without imposing restrictions on the construction of foreign-owned car factories in Australia. This question is intended for you to analyze a potential rationale for these policies. The demand for cars in Australia bas the following form: QD(P) - P (1) where Qp(P) is in millions of cars and P is in units of $10,000. The domestic supply of cars in Australia takes the following form: Qs(P) = P (2) (a) What is the price elasticity of demand of this function when P=2?! What is the price elasticity when P=3? (Hint:-) [1 mark] (b) As you can see by your answers in (a), the demand function is unique because it has the same elasticity along the entire demand curve. We call demand functions with this property "isoclastic." Use the formula for elasticity to show that the clasticity is always equal to your answer in part 1 regardless of the P chosen. [1 mark] (e) Suppose the economy is closed to imports. What is the price of cars in a closed economy? What is the quantity of cars sold at this price? In a demand/supply graph indicate the equilibrium price and quantity and show the area representing consumer surplus and the area representing producer surplus.[1 mark (d) Now suppose that the international price of cars is P = 2 and that there is an infinite supply of cars at this price. If there were no restrictions, how many cars would be imported? How many would be produced domestically? How many would be consamed? On your graph, show what the change in consumer surplus would be relative to the case of the closed economy. Show the change in producer surplus for the domestic car company. (Both consumer and producer surplus can be shown graphically - you don't need to solve them.) (2 marks] (e) Suppose Australia imposes a quota on imports of 1.1 million cars from abroad. What is the price paid by consumers to buy a car in Australia following the introduction of the quota? Assume that the quota rights are assigned Japanese car producers and that these producers always find it in their interest to produce for any price at or above 2. What is the change in domestic producer surplus with respect to the open trade outcome considered in part (d)? what is the change in consumer surplus in this market relative to the open trade outcome considered in part (d)? What is the dead weight loss caused by the introduction of the quotas? (Again, do the producer surplus, consumer surplus, and deadweight loss graphically.) [2 marks] (f) Imagine that due to the high Australian price for cars, some Japanese car producers open plants in Australia. So now the supply of cars in Australia is the sum of (1) the domestic supply from Australian owned producers, (2) the imported cars from Japan,

President Trump and Congressional Democrats are negotiating over how to spend 85 billion for border security along the United States 2,000 mile border with Mexico. Trump suggests spending the money on a concrete wall which costs $1 billion per 100 miles, while Democrats suggest spending the money on electronic fencing and drones which cost $250 million per 100 miles. Let zy denote the amount of concrete wall built in hundreds of miles and r2 denote the amount of electronic wall built in hundreds of miles. You can assume that each mile of physical and electronic fencing is equally effective and that the government wants to maximize the effectiveness of the border wall.

Part A

(i) What is the government's budget constraint for border security? The budget constraint (in billions) is

21 +0.250 5

(ii) Write a function that represents the government's preferences. Because physical and electronic fencing are equaling effective, they are perfect substitutes. The utility function is

(iii) What is the government's optimal border security policy?

The government should choose the cheaper option, which is electronic fencing. Hence, = 0 and 2 =20,

(iv) Suppose Trump makes a deal with Mexico. Mexico will pay for half of the cost of a physical wall.

What is the new budget constraint?

The new budget constraint is

0.5x) +0.25 5.

Describe the Keynesian theory

Discuss the marketing mix strategies

13. Non-corporations are taxed as pass-through entities, meaning that A. profits and losses are claimed on owners' personal tax returns. B. they do not have to pay payroll taxes. C. their income tax rates are lower than those of corporations. D. they pay only state and local taxes. 14. Which of the following activities is an example of preparing before attempting to sell an idea: A. Explaining solutions to audience needs B. Determining the details of your idea C. Overcoming objections from the audience D. Affirming the audience's decision to "buy" 15. Managers are more likely to be able to persuade employees to follow new procedures if the managers have A. organizational skills. B. credibility. C. enthusiasm. D. self-motivation.

20. The entrepreneurial discovery process that involves finding a way to meet an existing demand by inventing new products from available resources is based on A. science. B. medicine. C. psychology. D. physics. 21. Dan is in the process of determining the types of computer software and telephone service that will best suit his new business and get it up and running. Dan is considering his business's A. financial constraints. B. technical needs. C. competitive advantage. D. staffing requirements. 22. Which of the following statements is true about business startup requirements: A. New business owners usually need to register for patent protection. B. The financial needs to start a new business depend on the nature of the venture. C. Purchasing a franchise is usually easy and inexpensive for startup business owners. D. Equipment is the least expensive requirement for a startup business.

1. An individual has a utility function u= rand an income of $60. a) Solve for MU and MU2 and use these to determine the MRS. Now use the tangency condition MRS= together with the budget line to solve for the demand functions for P2 and r2 for this consumer. b) Initially we have p = 2 and p2 = 1, but then pi falls to 1. Use your demands to solve for points A and C (the optimal points pre and post price change) as done in class. Show these points on a clear well-labelled graph c) Now determine the Slutsky demand by computing the income that would make point A just affordable with the new prices. Plug this hypothetical income and the new prices into your demands to solve for point B, as done in class. Show both the hypothetical budget line and point B on either your graph in a) or a new graph. Again, make your graphs - including those below- complete and clear. Show the substitution and income effects on your graph, and compute them. g) Which substitution effect is larger (in absolute value) the Slutsky one or the Hicks one? Is this true for any set of prices and any income (keeping the same preferences)?

address every question