Development Accounting The table above tell us that. First, there are surprisingly large difference in the level of productivity, among countries. Cap

Measuring Productivity Productivity is the effectiveness with which factors of production are converted into output. In other word, productivity is th

Outline of the Lecture Review of Solow Model. Development Accounting Going beyond Solow Model First part of the assignment presentation Solow producti

Market imperfections M&M relaxed assumption of perfect capital market by considering corporate taxation. If we relax perfect market assumption fur

The traditional approach Ke increases as gearing increases due to rising financial risk and, later, bankruptcy risk. Kd rises at high levels of gearin

What is gearing? The mixture of debt finance relative to equity finance that a company uses to finance its business operations Gearing ratios assess f

Average and marginal cost The marginal cost of capital is the cost of the incremental capital raised. Initially, as cheaper debt is added, average cos

Calculating the WACC Market values or book values? Book values are historical Market values reflect current requirements Note that retained earnings a

Redeemable bonds The cost of debt of redeemable bonds is the internal rate of return of the valuation model on the previous slide. Using this model to

Retained earnings Retained earnings have an opportunity cost, which is equal to the cost of equity. The cost of retained earnings can thus be found in