What is the principal goal of a firm like CorpCo? As a managerial economist how would you define an ‘optimal decision’ for a firm?

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter5: Investment Decisions: Look Ahead And Reason Back
Section: Chapter Questions
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  1. What is the principal goal of a firm like CorpCo? As a managerial economist how would you define an ‘optimal decision’ for a firm? 
  2. The firm is considering investing $300,000 for a period of five years. Expected earnings are $50,000 in year 1, $60,000 in year 2, $75,000 in year 3 and $90,000 in years 4 and 5. Should the firm decide to invest, if the interest rate is 8%? 
  3. The firm paid a dividend of $6 during the past year and it estimates dividends to grow at 7% annually in the future. Firm’s stockholders require a rate of return of 14%. What would be the expected value of each share today?  
  4. Which are the two basic risks affecting returns when shareholders value any business? Briefly explain.
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