Describe the Capital Asset Pricing Model (CAPM) and how it is used in capital budgeting decisions
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CAPM is a procedure for adjusting a measure of the required rate of return on a firm's stock for risk. This risk-adjusted measure of the required rate of return on a firm's stock is used as the opportunity cost of capital in equity financing of a capital project. The projected cash flows from the project are discounted back to a net present value using this risk-adjusted rate of return. The risk adjustment is based on the Beta value of a firm's stock: the ratio of the volatility in the rate of return on a firm's stock to the volatility in the rate of return on a market portfolio of stocks.
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Economists refer to the ability of one person or nation to do something with a lower opportunity cost than another as _____
a. voluntary trade b. specialization c. gains from trade d. absolute advantage e. comparative advantage
If Country A can produce a good at a lower opportunity cost than Country B can,
a. there are benefits from trade b. Country A has an absolute advantage in producing the good c. economic efficiency has been achieved d. Country A does not have a comparative advantage in producing the good e. Country A can sell the good for a higher price abroad
Long-run increases in living standards, as measured by real GDP per person, are primarily the result of increases in:
A. government budget surpluses. B. average labor productivity. C. the money supply. D. population.
The sale of all alcoholic beverages is taxed in Budopia. If the demand for alcohol in Budopia is perfectly inelastic, how much of the tax burden will be borne by the consumers and why?
What will be an ideal response?