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Chapter 4: Q.7B (page 396)

Define each of the following in the context of a business cycle.

a. Peak

b. Contraction

c. Trough

d. Expansion

Short Answer

Expert verified

Answer

a. The transition from the end of an expansion to the start of a contraction.

b. The period from the peak to the bottom of the recession

c. The period from the bottom of the recession just before the economy enters the recovery

d. The period from the bottom of the recession to the peak of the economy

Step by step solution

01

Step by Step Solution Step 1: Definition of Peak

It is the transition from the end of an expansion to the start of a contraction.

02

Definition of Contraction

It is the period from the peak to the bottom of the recession.

03

Definition of Trough

Step 4: Definition of Expansion

04

Definition of Expansion

It is the period from the bottom of the recession to the peak of the economy.

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Most popular questions from this chapter

OceanGate sells external hard drives for \(200 each. Its total fixed costs are \)30 million, and its variable costs per unit are $140. The corporate tax rate is 30%. If the economy is strong, the firm will sell 2 million drives, but if there is a recession, it will sell only half as many. What is the firm’s degree of operating leverage? If the economy enters a recession, what will be the firm’s after-tax profit?

The MoMi Corporation’s cash flow from operations before interest and taxes was \(2 million in the year just ended, and it expects that this will grow by 5% per year forever.

To make this happen, the firm will have to invest an amount equal to 20% of pretax cash flow each year. The tax rate is 35%. Depreciation was \)200,000 in the year just ended and is expected to grow at the same rate as the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 12% per year, and the firm currently has debt of $4 million outstanding. Use the free cash flow approach to value the firm’s equity.

Jand, Inc., currently pays a dividend of \(1.22, which is expected to grow indefinitely at 5%. If the current value of Jand’s shares based on the constant-growth dividend discount model is \)32.03, what is the required rate of return?

In what circumstances is it most important to use multistage dividend discount models rather than constant-growth models?

In which stage of the industry life cycle would you place the following industries?

(Warning: There is considerable room for disagreement concerning the “correct” answers to this question.)

a. Oil well equipment

b. Computer hardware

c. Computer software

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e. Railroads
See all solutions

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