(Subsequent to the writing of the case, the U.S. Treasury reduced, but did not eliminate, the tax deductibility of original issue discount, so these zero-coupon bonds became less attractive.) Thus, the bond issuer contemplates the following cash flow pattern: Time Zero + $327 Years 1-8 + $33.65/yr...
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By trial and error, this rate can be found to be approximately 8.5 percent. (A calculator shows it to be 8.63 percent.) c. With 15 percent bonds issued for par, the net-of-tax interest payment stream is simply $150 (1-0.40) = $90/bond/yr. for 8 years. If one makes a calculation like the one for part (b), but with Time Zero in flow equal to $1,000 (instead of $327) and the annual outflows equal to $90 (instead of $33...
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Cost and Revenue Curves The unit price goes up as the the fixed cost increases. The Total Cost (TC) curve will move upward as the total Revenue (TR) moves downward. 3. When MR=MC occurs where the price is equal to the AVC at this point companies generally will make the decision to shutdown in the short run...	2 / 503
econ ? Definition- Market structure in which a very large number of firms sell a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no nonprice competition, and there are a large number of buyers and sellers...	2 / 338
Is it the case the firms must maximise profits in order to survive? Monopoly; will markets accept firms that do not produce at an optimum output level and price of good? • Reasons for firms not to be precise profit-maximisers: unpredictable outcomes of business activity (present value, risk); ownership and control division; marginal output rule not strictly adhered to ; other motivations in business activity (revenue maximisation) – manufacturing at short term loss; don’t undermine the long-term (generic) logic of behaviour in choosing the output level and price-taking/making(for monopolies)	2 / 392
Pure Competition At a lesser price, lesser would force the exit of the firms industry until the product rose to equal average total cost. The long- run supply curve is horizontal for a constant-cost industry, up-sloping for an increasing cost industry...	2 / 438