In the endogenous growth model, suppose that there are three possible uses of time. Let u denote the fraction of time spent working, s the fraction of time spent neither working nor accumulating human capital (call this unem- ployment), and 1 – u – s the fraction of time spent accumulating human capital. Assume that -
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- Most economies have a goal of maximizing the average consumption per period. Assume that during each year, an economy saves the same (to be determined) percentage S of its production. During a year in which the beginning capital level is K, a quantity K1y2 of capital is produced. If the economy saves a percentage S of its capital, then during the current year it consumes (1 2 S)K units of capital and, through savings, adds (SK) 1y2 units of capital. Also, during any year, 10% of all capital present at the beginning of the year depreciates or wears out. a. What annual savings percentage S maximizes the long-run average consumption level? Assume that year 50 represents the long run, so that the objective is the consumption level in year 50. You can assume the initial capital is 1 (for some appropriate measurement unit). b. Use SolverTable to see how the optimal value of S depends on the annual depreciation rate.Calculate the Terminal Value using the Perpetual growth Method Cost of Capital using WACC = 11.02% Terminal growth rate = 3%According to the Solow model, how would each of the following affect steady-state (i) output per worker, (ii) consumption per worker, and (iii) the long-run growth rate of the total capital stock? Explain and provide graphical illustration using the graph of production function, saving function, and effective depreciation line. a. The destruction of a portion of the nation's capital stock in a war. b. An immigration wave of individuals that exhibit both higher saving and fertility rates than the current population. c. A one-time improvement in productivity
- Assume that the following ratios are constant. Total asset turnover 1.37, profit margin 6.9%, equity multiplier 1.7, payout ratio 57%. What is the sustainable growth rate?Where do the 8% from the growth rate come from?The steady state of the Solow Growth model occurs when the amount of physical capital reaches the point where replacing worn out capital amounts to all of the capital investment of a country. Group of answer choices True False
- Can you answer these in Excel (and show any calculation formulas). See the attached image for the information. 1. What is the payack period, NPV, IRR? 2. What happens to the NPV and IRR if initial capital goes up 30%? 3. How much would the selling price have to increase to compensate for 30% in capital costs to the original level in 1.? 4. What is your recomendation?A project has a 0.92 chance of doubling your investment in a year and a 0.08 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)A firm’s sustainable growth rate can be calculated using the formula Sustainable growth rate = (p(S/A)(1 + D/E) x R) / [1 – (p(S/A)(1 + D/E) x R)] Discuss the relationship between sustainable growth rate and each of the four variables in the above formula
- Quick Grow is in an expanding market , and its sales are increasing by 25% per year. Would the net working capital to be increasing or decreasing, explain why?Use the information from this table to find the expected return for each asset. State of Economy Probability of State Return on Asset J Return on Asset K Boom 30% 5% 24% Growth 40% 5% 12% Stagnant 20% 5% 4% Recession 10% 5% -10%16. You are considering an investment with the following cash flows: Year Cash Flow 0 -$50,000 1 $ 7,000 2 $ 4,000 3 $9,000 4 $61,000 What is the internal rate of return (IRR) for this investment? SHOW WORK