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Discuss how public choice is derived through different voting models.
Why is Fiscal Fedrelism efficient in provision of public service?

You have been asked by management to prepare a report on why the personnel budget has a large negative variance. What information would you include in your report?
Suppose that there are only two fishermen, Zach and Jacob, who fish along a certain coast. They would each benefit if lighthouses were built along the coast where they fish. The marginal cost of building each additional light house is K100.00. The marginal benefit to Zach of each additional lighthouse is 90-Q, and the marginal benefit to Jacob is 40-Q, where Q equals the number of lighthouses.

TASK
a. Explain why we might not expect to find the efficient number of lighthouses along the coast.
b. (Showing all calculations) what is the efficient number of lighthouses? What would be the net benefits to Zach and Jacob if the efficient number were provided?
For the next fiscal year, you forecast net income of $50,000 and ending assests of$500,000. Your firm payout ratio is 10%. Your beginning stockholders equity is $300,000 and your beginning total liabilities are$120,000. Your non-debt liabilites such as accounts payable are forecasted to increase by $10,000. Assume your beginning debt is$ 100000. What amount of equity and what amount of debt would you need to issue to cover the net new financing in order to keep your​ debt-equity ratio​ constant?
Eberhart Manufacturing has projected sales of $145 million next year. Costs are expected to be$81 million and net investment is expected to be $15 million. Each of these values is expected to grow at 14 percent the following year, with the growth rate declining by 2 percent per year until the growth rate reaches 6 percent, where it is expected to remain indefinitely. There are 5.5 million shares of stock outstanding and investors require a return of 13 percent return on the company’s stock. The corporate tax rate is 40 percent. a. What is your estimate of the current stock price? b. Suppose instead that you estimate the terminal value of the company using a PE multiple. The industry PE multiple is 11. What is your new estimate of the company’s stock price? 1. What lump sum of money must be deposited into a bank account at present time so that$500 per month can be withdrawn for five years, with the first withdrawal scheduled for six years from today? The interest rate is 12% per year compounded monthly.

2. A woman arranges to repay $5,000 bank loan in 15 equal payments at a 10% effective annual interest rate. Immediately after her fifth payment, she borrows another$2,500, also at 10% per year. When she borrows the $2,500, she talks the banker into letting her repay the remaining debt of the first loan and the entire amount of the second loan in 12 equal annual payments. The first of these payments would be one year after she receives the$2,500. Compute the amount of each of payments.
Two firms operating under oligopoly are faced with two choices, to charge a high price or a low price. If one firm charges a low price while the other a high price, the firm that charges a low price attracts customers and earns a profit of $600,000 while the firm charging a high price loses customers and earns only$100,000. If both firms charge a high price they earn $400,000 each while if both charge a low price, they earn$200,000 each.
a) What profits are the firms likely to earn in the absence of cooperation?
b) If the firms cooperated, what profits would each firm earn?
1. The profits from projects A and B have variances of $500, 000 and$45, 000 respectively. Which of the two projects is more risky if the expected values of the profits are $5000 and$500, respectively?
2. A project has expected risky cash flows of $90, 000 in perpetuity while the certainty equivalent cash flows are$60, 000. The risk free rate is 10%. What is the risk adjusted rate of return on the risky cash flows?
3. Should an investor invest in this project if the initial cost is $650, 000? 4. What would be the internal rate of return if the cost of the project was$600, 000?
A firm is considering employing one of the two machines A and B over a period of 4 years at the end of which the salvage value of each is zero. The cost of machine A is $10, 000 while that of machine B is$11, 000. The probability distributions of the returns for each machine are given in the table below.
PROBABILTY MACHINE A($) MACHINE B($)
0.25 6000 7000
0.50 5000 5000
0.25 4000 3000
The risk free discount rate is 10% while the risk premium applied as follows.
STANDARD DEVIATION(\$) RISK PREMIUM
0 – 999 0%
1000 – 1999 10%
2000 – 2999 10%
3000 – 3999 20%

Which of the two machines should be installed?
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