Managerial Economics Week 1

BUSN6120

Homework 1

Answer the following questions:

1. Define scarcity and opportunity cost. How are these economic concepts related? What role do they play in the making of managerial decisions?

2. A company has two million shares outstanding. It paid a dividend of $2 during the past year, and expects that dividends will grow at 6 percent annually in the future. Stockholders require a rate of return of 13 percent. What would you expect the price of each share to be today, and what is the value of the company’s common stock?

3. Discuss the difference between the calculations of shareholder wealth and the concept of Market Value Added. Which of the two appear to be more meaningful from the viewpoint of a shareholder?