Capital budgeting

Explain the three classifications of production and give examples of each classification  Explain opportunity costs and give examples  Explain the purpose and evolution of the UK standard industrial classification (SIC) since 1948 Explain with the use of two (2) separate diagrams, the shift in the demand curve and the movement along the demand curve Explain the income and substitution effect of an increase in price.  Explain two types of markets and give examples of each  Define a public good and give examples of public goods Explain the three ways in which government intervenes in the market and give examples Explain the four key macroeconomic policy objectives that governments typically pursue.  Explain the circular flow of income including the inner flow, withdrawals and injections. Define and give examples of each of the four major areas of finance Explain the determinants of market interest rates including the various types of risk premiums (5 marks) (c) Explain the four basic financial statements, including formats and purpose. Use the Marks and Spencer 2014 Annual Report financial statements on pages 88-91 of the Annual Report. Use the following link or see GSM Learn for the Annual Report. Link: You are required to calculate four (4) ratios – one (1) of each of the following categories - liquidity ratios, market value ratios, debt management ratios and asset management ratios – and explain what each ratio means for Marks and Spencer in the UK economy.  Describe the importance of capital budgeting decisions and the general process that is followed when making investment (capital budgeting) decisions  Describe how the net present value (NPV) technique is used to make investment (capital budgeting) decision Explain the yield curve including the reasons why yield curves differ. Use diagrams. (5 marks) Two projects being considered are mutually exclusive and have the following projected cash flows: Year Project A Project B 0 −$50,000 −$50,000 1 15,625 0 2 15,625 0 3 15,625 0 4 5,625 0 5 15,625 99,500 If the required rate of return on these projects is 10 percent, which would be chosen and why? Show your calculations/explanations.

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