Questions tagged [capital-returns]

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4
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6answers
325 views

What determines whether slavery is economically efficient in industrialized/modern era economies?

Various forms of slavery were nearly universal before the industrial revolution. After industrialization, it would naively seem forced labor would continue to be widespread, as there is no way to ...
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0answers
7 views

ROE for large North American pipelines

I am interested in how much "economic value" is/was forecast to accrue to various stakeholders as a result of the Keystone XL pipeline project and the DAPL pipeline project. I would be ...
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1answer
46 views

What's the economic argument (if any) for taxing dividends as ordinary income?

My (limited) understanding is that dividends and share repurchases are economically very similar: while share repurchases are slightly less direct, both transactions are effectively ways for publicly ...
5
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2answers
59 views

Why do different product-markets record different rates of return if the assumption of competitive markets hold?

I'm a new economics student, and have become fascinated by the field of Industrial Organization. To that end, I'm reading through the Carlton and Perloff Modern Industrial Organization text book. In ...
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2answers
79 views

Why does the Market Risk Premium increase in times of crisis?

My question is a bit more specific as it is indeed well known that investors expect higher returns in times of higher risks/volatility. However, isn't it counterintuitive to expect the market to ...
1
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2answers
95 views

Why are break-even and shut down points based on average cost?

I understand the basic idea of break-even and shut-down points, where break-even is the price at which revenue covers all economic costs, and is located where the marginal cost equals to average cost. ...
0
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1answer
49 views

Intertemporal budget constraint notion

Let $W$ denote the investor's wealth $B$ is the the investment in the risk free asset (suppose that the risk free rate is taken to be zero) and $X$ is the investment on the risky security which has ...
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3answers
60 views

ROI and stock rates

I'm an engineer with minimal to zero knowledge about economical topics, please be patient with me if the following question makes no sense or is too basic ... Currently I'm working through the "...
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0answers
22 views

Link between recession and decline in investments

I recently followed MIT online lectures for economy and I found this - one of the reason for investments decline in recession is bad expectations about economy -----> leading to Higher capital output ...
2
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2answers
41 views

Solving a problem using CAPM and capital structure theory

I am given the following problem: A firm currently owns assets worth $4$ milllion dollars that have a beta of 1. The risk-free interest rate is 10% and the market risk premium is 8%. Suppose the firm ...
0
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1answer
20 views

Leveraged Return on Investment

A general return on investment (ROI) formula is: \begin{equation} \text{ROI}=\frac{\text{Net Profit}}{\text{Total Investment}}. \end{equation} But if you think about an investment that requires some ...
1
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1answer
53 views

How to calculate cost of equity?

So i have this question on leverage and cost of capital: Leverage and the cost of capital Gamma Airlines has an asset beta of 1.5. The risk-free interest rate is 6%, and the market risk premium is 8%....
0
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1answer
796 views

How to calculate the after tax WACC

So i have this question: Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) =$300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average ...
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1answer
52 views

Stock return predictability. Why do papers continue to use Granger Causality tests

There is a long literature on stock return predicabtility. When I read papers I see lots of authors still using granger causality tests. It is still prominently taught in undergrad and grad classess....
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0answers
14 views

Return on Capital Invested - what to include in 'capital employed'

The formula for ROCE is: ROCE = net profit before tax / capital employed Where capital employed is long-term liabilities + share capital + retained profit. However, I've only used this in very ...
0
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1answer
66 views

intuitive interpretation of the marginal return/productivity of capital being less than one

Let's assume you have a production function, f, and you want to know how the output changes with respect to capital, everything else constant (ceteris paribus), so you want to know the marginal ...
2
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3answers
189 views

Should housing be considered a form of capital for the purpose of capital gains taxation?

Economists across the political spectrum almost unanimously oppose the home mortgage interest tax deduction. While I'm sure there are a few whom I've missed, I could only find a single professional ...
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0answers
32 views

If US capital income taxation were eliminated, which ordinary income tax brackets would be equally progressive?

This question only considers federal taxes in the United States. Also, by "capital income" I am including dividends, interest, capital gains, corporate incomes and estates. The Chamley-Judd result ...
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0answers
47 views

Concept of return on investment but for the state instead a firm

So, following a discussion I had today, I have the following question. If we use the return on investment (ROI) to describe the gain of an investment is there a similar concept not for a company but ...
0
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1answer
25 views

Determining the capital return from the investment in dynamic firms and their growth

According to Tech Tour Growth 50, an organization that identifies the. young firms valued between one hundred millions and one billion dollars and which benefits ("chiffre d'affaires" increase by 50% ...
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2answers
9k views

How to convert daily returns to annual returns?

I have a task: to download daily stock quotations, create a portfolio and draw a CML-line. Risk-free rate was given: 6.5% of annual. I decided to convert daily returns to annual returns, using formula ...
5
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1answer
2k views

Estimating the rental rate of capital from data

Take the classic optimization problem of the neo-classical firm: \begin{equation} \begin{array}{*2{>{\displaystyle}r}} \mbox{maximize (over $K, L$)} & f(K, L) - RK - WL \end{array} \end{...
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0answers
115 views

Church tax capital gains tax exemption

My understanding is that churches in the United States, as they are non-profit organizations, are exempt from pay tax which includes capital gains tax. If one were to start a church that had all the ...
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2answers
3k views

Marginal Product of Capital in the Solow Model

In the classic form of the Solow Model: $$ Y=K^\alpha (AL)^{1-\alpha } $$ Describe circumstances in which the marginal product of capital could rise over time, at least for a temporary period. I've ...
3
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1answer
1k views

Solow Model, Growth rate of K/L and Y/L in steady state

I have been given the following setup: $$ Y=K^\theta (AL)^{1-\theta }$$ Where Y = Output, K = Capital, L = Labour and A = Productivity. $$ \frac{\dot{L}}{L} = n $$ $$ \frac{\dot{A}}{A} = g $$ The ...
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2answers
12k views

Solow Model: Steady State v Balanced Growth Path

Okay, so I'm having real problems distinguishing between the Steady State concept and the balanced growth path in this model: $$ Y = K^\beta (AL)^{1-\beta} $$ I have been asked to derive the steady ...
1
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1answer
135 views

How to find the variance co-variance matrix for 4 assets and market returns using the CAPM?

I understand the process on excel: calculate betas, calculate covariance with $Cov(R_{i,t},R_{j,t}) = \beta_{i,m} \cdot \beta_{j,m} \cdot \sigma^2_m$ where m is the market return and i and j are ...
2
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1answer
49 views

How does an UHN individual leverage their wealth? [closed]

How does an UHN individual leverage their wealth? Do they in fact do so, and should for example Bill Gates' 80 billion be understood as 800 - 900 billion dollar if he leverage his wealth 10 x? ...
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3answers
70 views

Leveraging private capital

If an ultra high networth individual, like Bill Gates, Mark Zuckerberg, Carlos Slim, Paul Allen, Elizabeth of Windsor, Amancio Ortega, Liliane Bettencourt, Stefan Persson, Bernard Arnault etc. would ...
2
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1answer
110 views

How to relate real rate of return on capital to bond interest rate: Lagrangian

Suppose that household resource constrain equation is as follows: $$P_tC_t + Q_tB_t+ P_tI_t \leq W_tL_t+R_tK_t+B_{t-1}+D_t$$ where $P_t$ is price at time $t$, $Q_t$ is the price of one bond quantity, $...
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0answers
38 views

Total costs as function of labor and quantity [closed]

If I have wage $w = 200$ and rental rate $r = 3050$ on short run, I can assume that $K=1$ and then get the total costs $TC = rK+wL = 3050 + 200L$. Isn't it correct? But what if I also have a cost of ...
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0answers
144 views

Returns to scale and specialization

Anyone care to explain how exactly decreasing returns to scale (DRS) can lead to specialization? Having come across a few studies showing how large farm enterprises tend to experience DRS, I came to ...
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0answers
63 views

Net of Tax Return on Capital: Definition, Proxy and Data

There is one input factor $k$. The representative firm maximizes profits with respect to employed capital, i.e. \begin{align} \max_k{\pi(k) = f(k)-(r+\tau)k} \end{align} where $f(\cdot)$ is the ...
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2answers
41 views

Calculating the growth rate of a stock over a year with imperfect information

I am trying to find the growth rate of a stock over a given year. Let's say I wanted to find the growth rate from today, June 11, 2015 to June 11, 2014. This is easy enough when you have perfect ...
5
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1answer
77 views

Do assets without rental income streams appreciate relative to assets with rental income streams?

In his book "The Armchair Economist", economist Steve Landsburg critiques an op-ed concerning the relative value of stocks and real estate: James K. Glassman wrote a piece in The New Republic to ...
3
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1answer
72 views

Capital in a credit frictions model

I won't go into detail of this model because it's really just one point that i'm confused about. This question is based on a model by Matsuyama (2007). Agents are deciding whether to invest in a ...
4
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1answer
238 views

Can capital still be paid its marginal product in the absence of a homogeneous capital stock?

Thomas Piketty's best-selling book on inequality, "Capital in the Twenty-First Century" has attracted a lot of criticism on the right for its data analysis. Less well-known, however, is the criticism ...
9
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1answer
481 views

Piketty's Return on Capital

How exactly does Piketty et al's method (as in his book) for computing the interest rate over time and countries work? I know that they use reported tax returns, and that some criticize them for also ...