3. A perfectly competitive firm has total revenue and total cost curves given by:
TR = 100Q
TC = 5000 + 2Q + 0.2Q^2
(a) Find the profit-maximizing output for the firm
(b) What profit does the firm make?

4. Mergers result in an increased economic efficiency. Discuss the economic justification (i.e., incentives) for a merger. List and define at least THREE reasons/incentives for firms to merge.

5. Company A has a beta of 1.3. The risk-free rate of interest is 6% and the rate of return on a market portfolio is 14%. Based on the Capital Asset Pricing model, what is the required rate of return on Company A's stock?

Solution Preview

Hi there,

For question 1, please see the Excel spreadsheet attached.

Question 2 - three reasons to merge:

1.Economy of scale
When two small companies merge, one of the biggest benefits is being able to streamline the business. Duplications can be eliminated or put to better use. That means that extra fax machine can be sold or you can share one certified accountant. Funds spent ...

XYZ company has a beta of -1.
The risk-free (nominal) rate is 3% per year and that therequiredrate of return on the market is 10% per year.
Find therequiredrate of return.

See attached file.
8- 1 EXPECTED RETURN
A stock's returns have the following distribution:
Calculate the stock's expected return, standard deviation, and coefficient of variation.
8- 3 REQUIREDRATE OF RETURN
Assume that the risk- free rate is 6% and the expected return on the market is 13%. What is therequired

Look at attached document.
8-1 EXPECTED RETURN A stock's returns have the following distribution:
Calculate the stock's expected return, standard deviation, and coefficient of variation.
8-3 REQUIREDRATE OF RETURN Assume that the risk-free rate is 6% and the expected return on the market is 13%. What is the requ

Consider the following information and then calculate therequiredrate of return for the Scientific Investment Fund, which holds 4 stocks. The market's requiredrate of return is 15.0%, the risk-free rate is 7.0%, and the Fund's assets are as follows:
Stock
Stock Investment Beta
A

Swamp & Sand's current dividend is $1.6 per share. Analysts expect the firm's growth rate of 2% per year to continue indefinitely. The current stock price is 12.5 . Calculate therequiredreturn on equity for this firm.

The company is paying the dividend of $4.37 and has a growth rate of 6.5%. The stock is currently selling for $175.
Calculate therequiredrate of return.

A company you are researching has common stock with a beta of 1.35. Currently, Treasury bills yield 2.5%, and the market portfolio offers an expected return of 11.5%. What is therequiredreturn on this common stock?
1. 10.93%
2. 11.86%
3. 21.43%
4. 14.65%