Explain Why, in a Simple Economy Which Does Not Include

question 29

Essay

Explain why, in a simple economy which does not include the government or taxation, saving equals investment at the equilibrium level of output.

Recognize the importance of using an appropriate discount rate, specifically the weighted average cost of capital (WACC), in evaluating investment projects, including adjustments for project risk.

Calculate the weighted average cost of capital (WACC) using a firm's target capital structure and component costs of capital, considering the effect of taxes.

Estimate a firm's cost of equity based on CAPM, incorporating the risk-free rate, market return, and the firm's beta.

Determine the appropriate weights of debt and equity in the calculation of a firm's WACC.

---

Definitions:

Rational Duty

A principle requiring individuals to act according to reason and logic in fulfilling their obligations or duties.

Kant

Immanuel Kant, an 18th-century German philosopher known for his work in epistemology, ethics, and aesthetics, particularly his formulation of the categorical imperative and contributions to deontological ethics.

Healthcare

The organized provision of medical care to individuals or a community, including preventive, curative, and palliative services.

Ross's

Refers to W.D. Ross's ethical theory, which emphasizes prima facie duties such as fidelity, reparation, and justice as a basis for moral obligations.