Economics for Business and Management Essay Example | Topics and Well Written Essays - 3000 words - 2

Economics for Business and Management - Essay Example A situation in which marginal cost is higher than marginal costs implies that further improvements can be for society and, thus, it is inefficient for society to prolong its situation at that level. On the other hand, when marginal costs are higher than marginal revenue, it means that there are wastages and society would do better if lowers output such that marginal costs are reduced to be just equal to marginal revenues. This is the market equilibrium and market equilibrium is interpreted as â€Å"efficient† because marginal costs are just equal to marginal returns. Usually, the people who hold on to the view are economists, businesspersons, and pragmatic policy makers. However, economists who take this position qualify that for market to fulfil its role as efficient allocator of resources, certain conditions apply. For example, some of the conditions necessary conditions are believed to be as follow: 1. The good or service which the market will allocate are private goods or service. Private goods are goods in which consumption is rival and excludable in consumption. Rival means consuming the good or service will deprive others of the same good. Excludable means it will not be feasible, costly, nor impractical from depriving others of the good. 2. There are no externalities involved in consuming or using the good or service. Externalities are third party effects on the good. For example, goods that pollute are assumed to have negative externalities. In contrast, health services are believe to have positive externalities because improvements in health benefits not only those who have purchased the good that enhances health but also third parties. In a typical demand-supply curve, the demand curve represents society’s valuation for the good in terms of marginal utilities while the supply curve represents that part of the marginal cost-curve above the

Strategic Corporate Finance case study 1 Essay Example | Topics and Well Written Essays - 2500 words

Strategic Corporate Finance case study 1 - Essay Example have a useful life of around 20 years and after that they are expected to be removed with a decommissioning cost of around  £2,000 and  £5,000 for onshore and offshore projects, respectively. As far as the adjustments are concerned, sales revenue has been the same for both projects and there is no change in either of profit and loss account and working of cash flows. Government grant has been adjusted such that the government grant would be received by the company in first year of the project which is  £2,000 and  £5,000 for both these projects respectively. However, in profit and loss account, government grant is spread to all 20 years in equal proportion which, however, is adjusted for the estimation of cash flows. Local taxes are included in the profit and loss statement however they have not been included in the estimation of cash flows as guided in the additional information. Being a non-cash expense, depreciation is not considered in the cash flow estimation which is however included in the profit and loss statement (Scott and  Megginson, 2008). Cash reserve is in fact working capital which is not included in the profit and loss statement. However, an outflow of cash reserve is shown before the start of first year project and has been realized in the last year of the project with the same amount. Capital budgeting process has been conducted for both these projects in order to evaluate the financial viability of these projects. The financial viability can be envisaged using four types of investment appraisal techniques such as 1) Net Present Value (NPV) 2) Internal Rate of Return (IRR) 3) Accounting Rate of Return, and 4) Payback Period (PP). The following discussion incorporates each of these four techniques with respect to both â€Å"onshore† and â€Å"offshore† projects. Net Present Value of any projects determines the present value of all the future cash flows discounted with an appropriate cost of capital of the firm after deducting the initial