Module 3 Equation 4 we learned the alternative formulation of elasticity. Alternative formulation of elasticity EP = dQ/dP * P/Q = dlnQ/dlnP Natural log: ln‚ uses the base “e” How? ∂lnQ/∂lnP =(d lnQ/dQ) * (dQ/dP) * (dP/dlnP) [ Note: dY/dX = 1/(dX/dY) since‚ dlnX/dX = 1/X‚ dX/dlnX = X] Example: Q = AP-α A:Constant>0 lnQ=lnA + ln(P-α) =lnA – αlnP EP = dlnQ/dlnP = -α ∝ =∆lnQ/∆lnP ∝ =P/Q* (∆Q/∆K) = Elasticity The coefficients of double log model are the corresponding
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borrowing. The objective of Financial Management is to maximize the wealth of organization and to magnify the returns to shareholders. Financing and investment decisions are very important in maximizing shareholder’s returns. The fixed cost assets or funds of a company play important role in maximizing EPS‚ ROE etc. 2.1 Classifications of Leverage: Basically‚ leverages are classified into two types. But‚ it can be ultimately three types. These are: 1) Operating Leverage 2) Financial
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as possible‚ the the firm should pick the debt-equity ratio that makes the pie as big as possible. S B Value of the Firm The Capital-Structure Question There are really two important questions: 1. Why should the stockholders care about maximizing firm value? Perhaps they should be interested in strategies that maximize shareholder value. 2. What is the ratio of debt-to-equity that maximizes the shareholder’s value? As it turns out‚ changes in capital structure benefit the stockholders if
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is the monopolist’s profit-maximizing level of output and price? Answer Step 1. Derive the MR and MC functions. Since Q = 100 - 2P‚ P = 50 – (Q/2) TR=P*Q=(50-1/2Q)Q=50Q-1/2Q2 MR=dTR/dQ=50-Q MC=dTC/dQ=16Q Step 2. Set MR=MC and solve for P*‚ Q* MR=MC 50-Q=16Q Q*=2.94 or 3 (rounded) P*=50-1/2Q*=50-1/2*3=48.5 2. Assume a monopolist faces a market demand curve P = 130 – 2Q‚ and has the short-run total cost function TC = 350 + 10Q. (a) What is the profit-maximizing level of output and price
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Chapter 5 DEMAND ANALYSIS QUESTIONS & ANSWERS Q5.1 Q5.1 Is the economic demand for a product determined solely by its usefulness? ANSWER No‚ two basic conditions must be met before economic demand is created. First‚ there must be value associated with acquiring and using the good or service. For individuals‚ this value is in terms of utility‚ well being‚ or satisfaction through consumption. For firms‚ this value is measured in terms of the profit created through resource employment. Second‚ there
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structure consisting of 70% debt. The following points justify such action: • The hallmark of value-based management is to choose strategies that add and maximize value for shareholders. • As noted in Exhibit 3‚ at higher levels of debt‚ the company’s EPS increase and they are able to raise dividends per share; these factors are likely to make AHP’s stock more attractive and thereby increase the market price for shareholders. The Business Week article profiling AHP noted‚ “One of the most common business
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not always had debt level consistent with this value (maybe because they got large tax deductions from depreciation without the financial risk) Capital Structure and the Trade Off for Stakeholders Is there a trade off between the objective of maximizing shareholder value and the objective of achieving an optimal capital structure? Let’s examine the possible effects of debt: 1. From a purely operative point of view‚ the firms earning stream is not affected by interest payments if we use either after
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| SHAREHOLDERS WEALTH MAXIMIZATION | 10/11/2010 About GSK - Our company Established in the year 1924 in India GlaxoSmithKline Pharmaceuticals Ltd. (GSK Rx India) is one of the oldest pharmaceuticals company and employs over 3500 people. Globally‚ we are a USD 45 billion‚ leading‚ research-based healthcare and pharmaceutical company. In India‚ we are one of the market leaders with a turnover of Rs. 1860 crore and a share of 5.2 per cent*. At GSK‚ our mission is to improve the quality of
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Debt Policy at UST 1. How well is UST doing? * UST has been doing extremely well. Revenues and earnings are growing at 9% and 11% respectively. * Named by Forbes as one of the top companies in terms of profitability. ROC‚ ROE and GPM one of the industry highest. * Paying back generous dividends of $2.2b and repurchasing $2b from 1988 to 1998. * However‚ they seem to be losing market share in the premium market to competitors and have not been able to make an impact in the
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Foods Company manufactures‚ markets‚ and distributes snack foods and frozen treats throughout the United States. Hill Country is overall well performed company. Sales‚ Net Income‚ ROE and ROA had increased at a steady rate. Company mainly focused on maximizing the shareholder value by the CEO and other management’s managerial philosophy. Currently‚ Hill Country uses a risk adverse strategy to choose their business or project. Hill Country’s industry is high competitive but it kept going well with cost
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