CorpCo is a large manufacturing firm with many stockholders. 

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

B. 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%?  

C. 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? 

D. Which are the two basic risks affecting returns when shareholders value any business? Briefly explain.