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Flashcard 1428237192460

Tags
#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4 #summary
Question
Overly optimistic bidders overestimate the true value and end up paying a price greater than that value. This result is known as [...].
Answer
the winner’s curse

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hat have the same value to all bidders, but bidders can only estimate that value before the auction is completed. Overly optimistic bidders overestimate the true value and end up paying a price greater than that value. This result is known as <span>the winner’s curse. Private value auctions sell items that (generally) have a unique subjective value for each bidder. Ascending price auctions use an auctioneer to call out ever increasing prices until t

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SUMMARY
ven price, the quantity demanded exceeds the quantity supplied, there is excess demand and price will rise. If, at a given price, the quantity supplied exceeds the quantity demanded, there is excess supply and price will fall. <span>Sometimes auctions are used to seek equilibrium prices. Common value auctions sell items that have the same value to all bidders, but bidders can only estimate that value before the auction is completed. Overly optimistic bidders overestimate the true value and end up paying a price greater than that value. This result is known as the winner’s curse. Private value auctions sell items that (generally) have a unique subjective value for each bidder. Ascending price auctions use an auctioneer to call out ever increasing prices until the last, highest bidder ultimately pays his/her bid price and buys the item. Descending price, or Dutch, auctions begin at a very high price and then reduce that price until one bidder is willing to buy at that price. Second price sealed bid auctions are sometimes used to induce bidders to reveal their true reservation prices in private value auctions. Treasury notes and some other financial instruments are sold using a form of Dutch auction (called a single price auction) in which competitive and non-competitive bids are arrayed in descending price (increasing yield) order. The winning bidders all pay the same price, but marginal bidders might not be able to fill their entire order at the market clearing price. Markets that work freely can optimize society’s welfare, as measured by consumer surplus and producer surplus. Consumer surplus is the difference between the total value

Flashcard 1428853493004

Tags
#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
Question
In a [...] , each buyer places a subjective value on the item, and in general their values differ.
Answer

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In the second case, called a private value auction , each buyer places a subjective value on the item, and in general their values differ. An example might be an auction for a unique piece of art that buyers are hoping to purchase for t

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3.8. Auctions as a Way to Find Equilibrium Price
true value. An example of a common value auction would be bidding on a jar containing many coins. Each bidder could estimate the value; but until someone buys the jar and actually counts the coins, no one knows with certainty the true value. <span>In the second case, called a private value auction , each buyer places a subjective value on the item, and in general their values differ. An example might be an auction for a unique piece of art that buyers are hoping to purchase for their own personal enjoyment, not primarily as an investment to be sold later. Auctions also differ according to the mechanism used to arrive at a price and to determine the ultimate buyer. These mechanisms include the ascending price (or English) auc

Annotation 1435749453068

#2-1-3-economic-rent #2-1-types-of-profit-measures #cfa-level-1 #economics #microeconomics #reading-15-demand-and-supply-analysis-the-firm #section-2-objectives-of-the-firm #study-session-4
EXAMPLE 1 Economic Rent and Investment Decision Making

The following market data show the global demand, global supply, and price on an annual basis for gold over the period 2006–2008. Based on the data, what observation can be made about market demand, supply, and economic rent?

Year200620072008Percent Change 2006–2008
Supply (in metric tons)3,5693,4753,508–1.7
Demand (in metric tons)3,4233,5523,805+11.2

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2. OBJECTIVES OF THE FIRM

Annotation 1442545536268

 #2-1-3-economic-rent #2-1-types-of-profit-measures #cfa-level-1 #economics #microeconomics #reading-15-demand-and-supply-analysis-the-firm #section-2-objectives-of-the-firm #study-session-4 How is the concept of economic rent useful in financial analysis? Commodities or resources that command economic rent have the potential to reward equity investors more than what is required to attract their capital to that activity, resulting in greater shareholders’ wealth. Evidence of economic rent attracts additional capital funds to the economic endeavor. This new investment capital increases shareholders’ value as investors bid up share prices of existing firms. Any commodity, resource, or good that is fixed or nearly fixed in supply has the potential to yield economic rent. From an analytical perspective, one can obtain industry supply data to calculate the elasticity of supply , which measures the sensitivity of quantity supplied to a change in price. If quantity supplied is relatively unresponsive ( inelastic ) to price changes, then a potential condition exists in the market for economic rent. A reliable forecast of changes in demand can indicate the degree of any economic rent that is forthcoming from the market in the future. When one is analyzing fixed or nearly fixed supply markets (e.g., gold), a fundamental comprehension of demand determinants is necessary to make rational financial decisions based on potential economic rent.
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from the fact that when price increases, the quantity supplied does not change or, at the most, increases only slightly. This is because of the fixation of supply by nature or by such artificial constraints as government policy. <span>How is the concept of economic rent useful in financial analysis? Commodities or resources that command economic rent have the potential to reward equity investors more than what is required to attract their capital to that activity, resulting in greater shareholders’ wealth. Evidence of economic rent attracts additional capital funds to the economic endeavor. This new investment capital increases shareholders’ value as investors bid up share prices of existing firms. Any commodity, resource, or good that is fixed or nearly fixed in supply has the potential to yield economic rent. From an analytical perspective, one can obtain industry supply data to calculate the elasticity of supply , which measures the sensitivity of quantity supplied to a change in price. If quantity supplied is relatively unresponsive ( inelastic ) to price changes, then a potential condition exists in the market for economic rent. A reliable forecast of changes in demand can indicate the degree of any economic rent that is forthcoming from the market in the future. When one is analyzing fixed or nearly fixed supply markets (e.g., gold), a fundamental comprehension of demand determinants is necessary to make rational financial decisions based on potential economic rent. EXAMPLE 1 Economic Rent and Investment Decision Making The following market data show the global demand, global supply, and price on an annual basis for gold over the

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2. OBJECTIVES OF THE FIRM

Flashcard 1442663501068

Tags
#rules-of-formulating-knowledge
Question
derivation steps: in more complex problems to solve, memorizing individual derivation steps is always [...]
Answer
highly recommended

(e.g. solving complex mathematical problems). It is not cramming! It is making sure that the brain can always follow the fastest path while solving the problem.

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derivation steps : in more complex problems to solve, memorizing individual derivation steps is always highly recommended (e.g. solving complex mathematical problems). It is not cramming! It is making sure that the brain can always follow the fastest path while solving the problem.</ht

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17. Redundancy does not contradict minimum information principle
ly follow the reasoning steps (e.g. solve a simple mathematical equation) and generate the answer. In such a case, providing the hint on the reasoning steps in the answer will only serve helping you always follow the right path at repetitions <span>derivation steps : in more complex problems to solve, memorizing individual derivation steps is always highly recommended (e.g. solving complex mathematical problems). It is not cramming! It is making sure that the brain can always follow the fastest path while solving the problem. For more on boosting creativity and intelligence read: Roots of genius and creativity, as well as more specific: Derivation, reasoning and intelligence multiple semantic representation : very often the same knowledge can be represented and viewed from different angles. Memorizing different representations of the same fact or rule is re

Annotation 1442665860364

 #sister-miriam-joseph #trivium The three arts of language provide discipline of mind inasmuch as mind finds expression in language.
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The three arts of language provide discipline of mind inasmuch as mind finds expression in language. The four arts of quantity provide means for the study of matter inasmuch as quantity—more precisely, extension—is the outstanding characteristic of matter</h

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Flashcard 1442667433228

Tags
#sister-miriam-joseph #trivium
Question
The three arts of language provide discipline of mind inasmuch as [...]
Answer
mind finds expression in language.

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The three arts of language provide discipline of mind inasmuch as mind finds expression in language. The four arts of quantity provide means for the study of matter inasmuch as quantity—more precisely, extension—is the outstanding characteristic of matter

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Flashcard 1442670316812

Tags
#cfa-level-1 #factors-that-determine-market-structures #microeconomics #reading-16-the-firm-and-market-structures #section-2-analysis-of-mkt-structures #study-session-4
Question
An example of relative size is the [...] industry.
Answer
automobile

Small number of large international producers (e.g., Ford and Toyota) are the leaders in the global market.

A number of small companies either have market power because they are niche players (e.g., Ferrari) or have little market power because of their narrow range of models or limited geographical presence (e.g., Škoda).

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An example of relative size is the automobile industry, in which a small number of large international producers (e.g., Ford and Toyota) are the leaders in the global market, and a number of small companies either have market power

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2. ANALYSIS OF MARKET STRUCTURES
d monopoly is the local electrical power provider. In most cases, the monopoly power provider is allowed to earn a normal return on its investment and prices are set by the regulatory authority to allow that return. <span>2.2. Factors That Determine Market Structure Five factors determine market structure: The number and relative size of firms supplying the product; The degree of product differentiation; The power of the seller over pricing decisions; The relative strength of the barriers to market entry and exit; and The degree of non-price competition. The number and relative size of firms in a market influence market structure. If there are many firms, the degree of competition increases. With fewer firms supplying a good or service, consumers are limited in their market choices. One extreme case is the monopoly market structure, with only one firm supplying a unique good or service. Another extreme is perfect competition, with many firms supplying a similar product. Finally, an example of relative size is the automobile industry, in which a small number of large international producers (e.g., Ford and Toyota) are the leaders in the global market, and a number of small companies either have market power because they are niche players (e.g., Ferrari) or have little market power because of their narrow range of models or limited geographical presence (e.g., Škoda). In the case of monopolistic competition, there are many firms providing products to the market, as with perfect competition. However, one firm’s product is differentiated in some way that makes it appear better than similar products from other firms. If a firm is successful in differentiating its product, the differentiation will provide pricing leverage. The more dissimilar the product appears, the more the market will resemble the monopoly market structure. A firm can differentiate its product through aggressive advertising campaigns; frequent styling changes; the linking of its product with other, complementary products; or a host of other methods. When the market dictates the price based on aggregate supply and demand conditions, the individual firm has no control over pricing. The typical hog farmer in Nebraska and the milk producer in Bavaria are price takers . That is, they must accept whatever price the market dictates. This is the case under the market structure of perfect competition. In the case of monopolistic competition, the success of product differentiation determines the degree with which the firm can influence price. In the case of oligopoly, there are so few firms in the market that price control becomes possible. However, the small number of firms in an oligopoly market invites complex pricing strategies. Collusion, price leadership by dominant firms, and other pricing strategies can result. The degree to which one market structure can evolve into another and the difference between potential short-run outcomes and long-run equilibrium conditions depend on the strength of the barriers to entry and the possibility that firms fail to recoup their original costs or lose money for an extended period of time and are therefore forced to exit the market. Barriers to entry can result from very large capital investment requirements, as in the case of petroleum refining. Barriers may also result from patents, as in the case of some electronic products and drug formulas. Another entry consideration is the possibility of high exit costs. For example, plants that are specific to a special line of products, such as aluminum smelting plants, are non-redeployable, and exit costs would be high without a liquid market for the firm’s assets. High exit costs deter entry and are therefore also considered barriers to entry. In the case of farming, the barriers to entry are low. Production of corn, soybeans, wheat, tomatoes, and other produce is an easy process to replicate; therefore, those are highly competitive markets. Non-price competition dominates those market structures where product differentiation is critical. Therefore, monopolistic competition relies on competitive strategies that may not include pricing changes. An example of non-price competition is product differentiation through marketing. In other circumstances, non-price competition may occur because the few firms in the market feel dependent on each other. Each firm fears retaliatory price changes that would reduce total revenue for all of the firms in the market. Because oligopoly industries have so few firms, each firm feels dependent on the pricing strategies of the others. Therefore, non-price competition becomes a dominant strategy. Exhibit 1. Characteristics of Market Structure Market Structure Number of Sellers Degree of Product Differentiation Barriers to Entry Pricing Power of Firm Non-price Competition Perfect competition Many Homogeneous/ Standardized Very Low None None Monopolistic competition Many Differentiated Low Some Advertising and Product Differentiation Oligopoly Few Homogeneous/ Standardized High Some or Considerable Advertising and Product Differentiation Monopoly One Unique Product Very High Considerable Advertising From the perspective of the owners of the firm, the most desirable market structure is that with the most control over price, because this control can lead to large profits. Monopoly and oligopoly markets offer the greatest potential control over price; monopolistic competition offers less control. Firms operating under perfectly competitive market conditions have no control over price. From the consumers’ perspective, the most desirable market structure is that with the greatest degree of competition, because prices are generally lower. Thus, consumers would prefer as many goods and services as possible to be offered in competitive markets. As often happens in economics, there is a trade-off. While perfect competition gives the largest quantity of a good at the lowest price, other market forms may spur more innovation. Specifically, there may be high costs in researching a new product, and firms will incur such costs only if they expect to earn an attractive return on their research investment. This is the case often made for medical innovations, for example—the cost of clinical trials and experiments to create new medicines would bankrupt perfectly competitive firms but may be acceptable in an oligopoly market structure. Therefore, consumers can benefit from less-than-perfectly-competitive markets. PORTER’S FIVE FORCES AND MARKET STRUCTURE A financial analyst aiming to establish market conditions and consequent profitability of incumbent firms should start with the questions framed by Exhibit 1: How many sellers are there? Is the product differentiated? and so on. Moreover, in the case of monopolies and quasi monopolies, the analyst should evaluate the legislative and regulatory framework: Can the company set prices freely, or are there governmental controls? Finally, the analyst should consider the threat of competition from potential entrants. This analysis is often summarized by students of corporate strategy as “Porter’s five forces,” named after Harvard Business School professor Michael E. Porter. His book, Competitive Strategy, presented a systematic analysis of the practice of market strategy. Porter (2008) identified the five forces as: Threat of entry; Power of suppliers; Power of buyers (customers); Threat of substitutes; and Rivalry among existing competitors. It is easy to note the parallels between four of these five forces and the columns in Exhibit 1. The only “orphan” is the power of suppliers, which is not at the core of the theoretical economic analysis of competition, but which has substantial weight in the practical analysis of competition and profitability. Some stock analysts (e.g., Dorsey 2004) use the term “economic moat” to suggest that there are factors protecting the profitability of a firm that are similar to the moats (ditches full of water) that used to protect some medieval castles. A deep moat means that there is little or no threat of entry by invaders, i.e. competitors. It also means that customers are locked in because of high switching costs. <span><body><html>

Flashcard 1442672676108

Tags
#cfa-level-1 #factors-that-determine-market-structures #microeconomics #reading-16-the-firm-and-market-structures #section-2-analysis-of-mkt-structures #study-session-4
Question
[...] refers to a company's relative ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand or both.

Answer
Market power

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An example of relative size is the automobile industry, in which a small number of large international producers (e.g., Ford and Toyota) are the leaders in the global market, and a number of small companies either have market power

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2. ANALYSIS OF MARKET STRUCTURES
d monopoly is the local electrical power provider. In most cases, the monopoly power provider is allowed to earn a normal return on its investment and prices are set by the regulatory authority to allow that return. <span>2.2. Factors That Determine Market Structure Five factors determine market structure: The number and relative size of firms supplying the product; The degree of product differentiation; The power of the seller over pricing decisions; The relative strength of the barriers to market entry and exit; and The degree of non-price competition. The number and relative size of firms in a market influence market structure. If there are many firms, the degree of competition increases. With fewer firms supplying a good or service, consumers are limited in their market choices. One extreme case is the monopoly market structure, with only one firm supplying a unique good or service. Another extreme is perfect competition, with many firms supplying a similar product. Finally, an example of relative size is the automobile industry, in which a small number of large international producers (e.g., Ford and Toyota) are the leaders in the global market, and a number of small companies either have market power because they are niche players (e.g., Ferrari) or have little market power because of their narrow range of models or limited geographical presence (e.g., Škoda). In the case of monopolistic competition, there are many firms providing products to the market, as with perfect competition. However, one firm’s product is differentiated in some way that makes it appear better than similar products from other firms. If a firm is successful in differentiating its product, the differentiation will provide pricing leverage. The more dissimilar the product appears, the more the market will resemble the monopoly market structure. A firm can differentiate its product through aggressive advertising campaigns; frequent styling changes; the linking of its product with other, complementary products; or a host of other methods. When the market dictates the price based on aggregate supply and demand conditions, the individual firm has no control over pricing. The typical hog farmer in Nebraska and the milk producer in Bavaria are price takers . That is, they must accept whatever price the market dictates. This is the case under the market structure of perfect competition. In the case of monopolistic competition, the success of product differentiation determines the degree with which the firm can influence price. In the case of oligopoly, there are so few firms in the market that price control becomes possible. However, the small number of firms in an oligopoly market invites complex pricing strategies. Collusion, price leadership by dominant firms, and other pricing strategies can result. The degree to which one market structure can evolve into another and the difference between potential short-run outcomes and long-run equilibrium conditions depend on the strength of the barriers to entry and the possibility that firms fail to recoup their original costs or lose money for an extended period of time and are therefore forced to exit the market. Barriers to entry can result from very large capital investment requirements, as in the case of petroleum refining. Barriers may also result from patents, as in the case of some electronic products and drug formulas. Another entry consideration is the possibility of high exit costs. For example, plants that are specific to a special line of products, such as aluminum smelting plants, are non-redeployable, and exit costs would be high without a liquid market for the firm’s assets. High exit costs deter entry and are therefore also considered barriers to entry. In the case of farming, the barriers to entry are low. Production of corn, soybeans, wheat, tomatoes, and other produce is an easy process to replicate; therefore, those are highly competitive markets. Non-price competition dominates those market structures where product differentiation is critical. Therefore, monopolistic competition relies on competitive strategies that may not include pricing changes. An example of non-price competition is product differentiation through marketing. In other circumstances, non-price competition may occur because the few firms in the market feel dependent on each other. Each firm fears retaliatory price changes that would reduce total revenue for all of the firms in the market. Because oligopoly industries have so few firms, each firm feels dependent on the pricing strategies of the others. Therefore, non-price competition becomes a dominant strategy. Exhibit 1. Characteristics of Market Structure Market Structure Number of Sellers Degree of Product Differentiation Barriers to Entry Pricing Power of Firm Non-price Competition Perfect competition Many Homogeneous/ Standardized Very Low None None Monopolistic competition Many Differentiated Low Some Advertising and Product Differentiation Oligopoly Few Homogeneous/ Standardized High Some or Considerable Advertising and Product Differentiation Monopoly One Unique Product Very High Considerable Advertising From the perspective of the owners of the firm, the most desirable market structure is that with the most control over price, because this control can lead to large profits. Monopoly and oligopoly markets offer the greatest potential control over price; monopolistic competition offers less control. Firms operating under perfectly competitive market conditions have no control over price. From the consumers’ perspective, the most desirable market structure is that with the greatest degree of competition, because prices are generally lower. Thus, consumers would prefer as many goods and services as possible to be offered in competitive markets. As often happens in economics, there is a trade-off. While perfect competition gives the largest quantity of a good at the lowest price, other market forms may spur more innovation. Specifically, there may be high costs in researching a new product, and firms will incur such costs only if they expect to earn an attractive return on their research investment. This is the case often made for medical innovations, for example—the cost of clinical trials and experiments to create new medicines would bankrupt perfectly competitive firms but may be acceptable in an oligopoly market structure. Therefore, consumers can benefit from less-than-perfectly-competitive markets. PORTER’S FIVE FORCES AND MARKET STRUCTURE A financial analyst aiming to establish market conditions and consequent profitability of incumbent firms should start with the questions framed by Exhibit 1: How many sellers are there? Is the product differentiated? and so on. Moreover, in the case of monopolies and quasi monopolies, the analyst should evaluate the legislative and regulatory framework: Can the company set prices freely, or are there governmental controls? Finally, the analyst should consider the threat of competition from potential entrants. This analysis is often summarized by students of corporate strategy as “Porter’s five forces,” named after Harvard Business School professor Michael E. Porter. His book, Competitive Strategy, presented a systematic analysis of the practice of market strategy. Porter (2008) identified the five forces as: Threat of entry; Power of suppliers; Power of buyers (customers); Threat of substitutes; and Rivalry among existing competitors. It is easy to note the parallels between four of these five forces and the columns in Exhibit 1. The only “orphan” is the power of suppliers, which is not at the core of the theoretical economic analysis of competition, but which has substantial weight in the practical analysis of competition and profitability. Some stock analysts (e.g., Dorsey 2004) use the term “economic moat” to suggest that there are factors protecting the profitability of a firm that are similar to the moats (ditches full of water) that used to protect some medieval castles. A deep moat means that there is little or no threat of entry by invaders, i.e. competitors. It also means that customers are locked in because of high switching costs. <span><body><html>

Flashcard 1442674511116

Tags
#six-tips-for-working-with-the-brain
Question
[...] changed the way I see my work. He shares the science of how the basal ganglia in the brain builds habit loops that include a cue or trigger, the routine of behavior, and the reward for completing that routine.
Answer
Charles Duhigg's The Power of Habit

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Charles Duhigg's The Power of Habit changed the way I see my work. He shares the science of how the basal ganglia in the brain builds habit loops that include a cue or trigger, the routine of behavior, and the reward for

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as links to TED Talks, articles, and assignments to further hone their skills. This blended approach allows me to create three retrievals spaced with sleep, and it also starts to build the habits of the behaviors I am trying to cultivate. <span>Tip #6: Be a habit designer Ultimately, the goal of most learning activities is behavior change. No matter the topic, we are trying to elicit new and better behaviors in the learner. Charles Duhigg's The Power of Habit changed the way I see my work. He shares the science of how the basal ganglia in the brain builds habit loops that include a cue or trigger, the routine of behavior, and the reward for completing that routine. Over time, habits become well-grooved neural pathways that almost happen on autopilot, for example how you currently log in to your computer or how you get to work. When we are trying to create behavior change, we need to think about the habits that are currently in place and how to design new, better habits that will be more compelling than the comfort of the current ones. I now think of myself as a habit designer. All of my learning design starts with identifying the habit loop I hope to instill, and I work backward from there. Although retrievals are the key to moving conceptual learning into memory, repetition is the key for habit design. The more we fire neurons together, the stronger that neural pathway becomes, to the point that researchers can measure the neurons growing thicker. As talent development professionals, we are in the business of cultivating potential. Your organization as a whole—as well as every person in it—have unrealized ability, and your job is to cultivate that potential through the learning experiences you create. Work with the natural processes of the brain and nervous system to maximize the impact of your great work. Brain Science Resources Brain science is a burgeoning field and, within it, you will find a wide range of defined specialties from neurology to psychology to biology. This is a lis

Annotation 1442677394700

 #costs #finance #investopedia Economic profit is the total return a company receives based on all costs incurred to attain that revenue. These costs include all explicit and implicit costs.
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Economic Profit Explicit costs are also utilized in the calculation of economic profit. Economic profit is the total return a company receives based on all costs incurred to attain that revenue. These costs include all explicit and implicit costs. Economic profit is utilized for long-term decision-making. Economic profit is used extensively to determine whether a business should enter or exit a market or industry.</

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Explicit Cost Definition | Investopedia
actually purchased. An implicit cost is the greatest benefit that could have resulted from the use of the funds. This cost could reflect a different vehicle that could have been purchased or the benefit gained from using the funds elsewhere. <span>Economic Profit Explicit costs are also utilized in the calculation of economic profit. Economic profit is the total return a company receives based on all costs incurred to attain that revenue. These costs include all explicit and implicit costs. Economic profit is utilized for long-term decision-making. Economic profit is used extensively to determine whether a business should enter or exit a market or industry.

Annotation 1442678967564

 #costs #finance #investopedia Economic profit is used extensively to determine whether a business should enter or exit a market or industry.
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ion of economic profit. Economic profit is the total return a company receives based on all costs incurred to attain that revenue. These costs include all explicit and implicit costs. Economic profit is utilized for long-term decision-making. <span>Economic profit is used extensively to determine whether a business should enter or exit a market or industry.<span><body><html>

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Explicit Cost Definition | Investopedia
actually purchased. An implicit cost is the greatest benefit that could have resulted from the use of the funds. This cost could reflect a different vehicle that could have been purchased or the benefit gained from using the funds elsewhere. <span>Economic Profit Explicit costs are also utilized in the calculation of economic profit. Economic profit is the total return a company receives based on all costs incurred to attain that revenue. These costs include all explicit and implicit costs. Economic profit is utilized for long-term decision-making. Economic profit is used extensively to determine whether a business should enter or exit a market or industry.

Flashcard 1442680540428

Tags
#analyst-notes #cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10
Question
Payback period is the expected [...]
Answer
number of years required to recover the original investment.

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Payback period is the expected number of years required to recover the original investment.

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Subject 3. Investment Decision Criteria
) 4 = 0 Since it is difficult to determine by hand, the use of a financial calculator is needed to solve for IRR. The IRR for Project A is 18.32% and for Project B is 15.03%. Payback Period <span>This is the expected number of years required to recover the original investment. Payback occurs when the cumulative net cash flow equals 0. Decision rules: The shorter the payback period, the better. A firm should establish a benchmark payb

Flashcard 1442682899724

Tags
#cfa-level-1 #corporate-finance #reading-36-cost-of-capital #study-session-11
Question
In reality, a company must estimate [...] costs of capital.
Answer
project-specific

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In reality, a company must estimate project-specific costs of capital.

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1. INTRODUCTION
ital is a central issue in corporate financial management. For the analyst seeking to evaluate a company’s investment program and its competitive position, an accurate estimate of a company’s cost of capital is important as well. <span>Cost of capital estimation is a challenging task. As we have already implied, the cost of capital is not observable but, rather, must be estimated. Arriving at a cost of capital estimate requires a host of assumptions and estimates. Another challenge is that the cost of capital that is appropriately applied to a specific investment depends on the characteristics of that investment: The riskier the investment’s cash flows, the greater its cost of capital. In reality, a company must estimate project-specific costs of capital. What is often done, however, is to estimate the cost of capital for the company as a whole and then adjust this overall corporate cost of capital upward or downward to reflect the risk of the contemplated project relative to the company’s average project. This reading is organized as follows: In the next section, we introduce the cost of capital and its basic computation. Section 3 presents a selection of methods for estimat

Flashcard 1442684472588

Tags
#cfa-level-1 #microeconomics #reading-16-the-firm-and-market-structures #section-2-analysis-of-mkt-structures #study-session-4
Question
Economists define a market as a group of buyers and sellers that are aware of each other and are [...] for the exchange of goods and services.
Answer
able to agree on a price

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Economists define a market as a group of buyers and sellers that are aware of each other and are able to agree on a price for the exchange of goods and services.

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2. ANALYSIS OF MARKET STRUCTURES
in more detail. Section 2.2 completes the introduction by providing and explaining the major points to evaluate in determining the structure to which a market belongs. 2.1. Economists’ Four Types of Structure <span>Economists define a market as a group of buyers and sellers that are aware of each other and are able to agree on a price for the exchange of goods and services. While the internet has extended a number of markets worldwide, certain markets are limited by geographic boundaries. For example, the internet search engine Google operates in a worldwi

Flashcard 1442687618316

Tags
#cfa-level-1 #corporate-finance #reading-35-capital-budgeting #study-session-10
Question
Regulatory, safety, and environmental projects are often required by a governmental agency, an [...], or some other external party.
Answer
insurance company

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Regulatory, safety, and environmental projects are often required by a governmental agency, an insurance company, or some other external party.

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2. THE CAPITAL BUDGETING PROCESS
New products and services. These investments expose the company to even more uncertainties than expansion projects. These decisions are more complex and will involve more people in the decision-making process. <span>Regulatory, safety, and environmental projects. These projects are frequently required by a governmental agency, an insurance company, or some other external party. They may generate no revenue and might not be undertaken by a company maximizing its own private interests. Often, the company will accept the required investment and continue to operate. Occasionally, however, the cost of the regulatory/safety/environmental project is sufficiently high that the company would do better to cease operating altogether or to shut down any part of the business that is related to the project. Other. The projects above are all susceptible to capital budgeting analysis, and they can be accepted or rejected using the net present value (NPV) or some other criteri

Flashcard 1442689453324

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#rules-of-formulating-knowledge
Question

Our verbal processing power is greatly inferior as compared with the [...].

Answer
visual processing power

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6. Use imagery
icture is worth a thousand words. Indeed if you look at the number of details kept in a picture and the easiness with which your memory can retain them, you will notice that our verbal processing power is greatly inferior as compared with the <span>visual processing power. The same refers to memory. A graphic representation of information is usually far less volatile. Usually it takes much less time to formulate a simple question-and-answer

Flashcard 1442692599052

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#blue-apron #citychef
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Answer
CSA model

Subscribers commit to purchasing a "share" of a farmer's seasonal crop, with the produce then distributed throughout the year.

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Blue Apron is another reinvention of the CSA model — in which subscribers commit to purchasing a "share" of a farmer's seasonal crop, with the produce then distributed throughout the year.

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Blue Apron is another reinvention of the CSA model — in which subscribers commit to purchasing a "share" of a farmer's seasonal crop, with the produce then distributed throughout the year. Instead, Blue Apron provides a lifestyle upgrade, granting subscribers access to well-balanced meals without the stress of meal planning. It's the joy of cooking distilled to its essenc

Flashcard 1442695744780

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#rules-of-formulating-knowledge
Question

Memorizing seemingly obvious things is [...]

Answer
not a waste of time!

Basics may also appear volatile and the cost of memorizing easy things is little. Better err on the safe side.

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3. Build upon the basics
the better. The shorter the initial chapter of your book the better. Simple models are easier to comprehend and encompass. You can always build upon them later on. Do not neglect the basics. Memorizing seemingly obvious things is <span>not a waste of time! Basics may also appear volatile and the cost of memorizing easy things is little. Better err on the safe side. Remember that usually you spend 50% of your time repeating just 3-5% of th

Annotation 1442699152652

 #means-of-communication #sister-miriam-joseph #the-function-of-language #trivium A sign is sensible, for it can be perceived by the senses.
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A symbol is an arbit rary sensible sign having a meaning imposed on it by convention. A sign is sensible, for it can be perceived by the senses. Every sign has meaning either from nature or from convention. A cloud, which is a sign of rain, and smoke, which is a sign of fire, have meaning from nature. A green light, which is a s

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Annotation 1442700725516

 #means-of-communication #sister-miriam-joseph #the-function-of-language #trivium Every sign has meaning either from nature or from convention.
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A symbol is an arbit rary sensible sign having a meaning imposed on it by convention. A sign is sensible, for it can be perceived by the senses. Every sign has meaning either from nature or from convention. A cloud, which is a sign of rain, and smoke, which is a sign of fire, have meaning from nature. A green light, which is a sign that traffic should move, has meaning from convention.</sp

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Annotation 1442702298380

 #means-of-communication #sister-miriam-joseph #the-function-of-language #trivium A cloud, which is a sign of rain, and smoke, which is a sign of fire, have meaning from nature. A green light, which is a sign that traffic should move, has meaning from convention.
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html>A symbol is an arbit rary sensible sign having a meaning imposed on it by convention. A sign is sensible, for it can be perceived by the senses. Every sign has meaning either from nature or from convention. A cloud, which is a sign of rain, and smoke, which is a sign of fire, have meaning from nature. A green light, which is a sign that traffic should move, has meaning from convention.<html>

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Annotation 1442729037068

 ♦ Close your eyes and relax. ♦ Remember a past experience when you felt absolutely triumphant—for example, the day you won a contest or an award. ♦ Hear the sounds in the room: the murmurs of approval, the swell of applause. ♦ See people’s smiles and expressions of warmth and admiration. ♦ Feel your feet on the ground and the congratulatory handshakes. ♦ Above all, experience your feelings, the warm glow of confidence rising within you
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Annotation 1442730609932

 help you access calm and serenity. They run the gamut of tastes and styles, so you may find that some raise your hackles while others strongly resonate: A week from now, or a year from now, will any of this matter? This, too, shall pass. Yes, it will. Look for little miracles unfolding right now. Love the confusion. What if you could trust the Universe, even with this?
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Annotation 1442732182796

 One of my favorite neuroscience resources, the Wise Brain Bulletin, suggested that a twenty- second hug is enough to send oxytocin coursing through your veins, and that you can achieve the same effect just by imagining the hug.
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Annotation 1442733755660

 Nineteenth-century author Napoleon Hill would regularly visualize nine famous men as his personal counselors, including Ralph Waldo Emerson, Thomas Edison, Charles Darwin, and Abraham Lincoln. He wrote: “Every night… I held an imaginary council meeting with this group whom I called my ‘Invisible Counselors.’… I now go to my imaginary counselors with every difficult problem that confronts me and my clients. The results are often astonishing.”
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Annotation 1442848836876

 Focus on the present: The next time you find yourself annoyed at some minor thing, remember that letting your mind focus on the annoyance could impair your body language. To counter this, follow the suggestions below: ♦ Sweep through your body from head to toe and find three abilities you approve of. You could be grateful that you have feet and toes that allow you to walk. You might appreciate your ability to read.
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 Use a third-person lens: For this technique, you’ll need just a few minutes to sit down, a pen, and some paper. ♦ Start to describe your life as if you were an outside observer, and focus on all the positive aspects you can think of. ♦ Write about your job—the work you do and the people you work with. Describe your personal relationships and the good things friends and family members would say about you. Mention a few positive things that have happened today and the tasks you have already accomplished. ♦ Take the time to write down this narrative. Just thinking about it won’t be as effective
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Annotation 1442851982604

 ♦ Sit or lie down, close your eyes, and set the scene. Where is your funeral being held? What day of the week, what time of day? What is the weather like? See the building where the ceremony is being held. See people arriving. Who’s coming? What are they wearing? Now move into the building and look around inside. Do you see flowers? If so, smell the flowers’ scent heavy on the air. See people coming through the door. What are they thinking? What kind of chairs are they sitting in? What do these chairs feel like? ♦ Your funeral starts. Think of the people you care most about or whose opinions matter most to you. What are they thinking? See them stepping up one after another and delivering their eulogy. What are they saying? What regrets do they have for you? Now think: What would you like them to have said? What regrets do you have for yourself? ♦ See people following your coffin to the cemetery and gathering around your grave. What would you like to see written on your tombstone? ♦ Almost everyone, of all ages, genders, and seniority levels, gets a bit teary-eyed by the end. You might feel moved, touched, stirred. Stay with these emotions as much as you can and aim to get comfortable with them.
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