A. Enid the Bella tor Stock given the cost of equity is 14-2%. The expected return on the market is 94% and the Risk Free Bale is 5.4 % Select one 23.6 b. 18 c.0.5 d.2.2
B. Which of the following is an organizationally-driven reason for outsourcing?
a. Turn fixed costs into variable costs
b. Improve risk management
c. Improve effectiveness by focusing on what the firm best does
d. Reduce costs through lowered cost-structure and increased flexibility
e. Improve credibility and image by associating with superior providers
The Correct Answer and Explanation is :
Part A: The Enid the Bella tor Stock
For the calculation of the required return on a stock, we can use the Capital Asset Pricing Model (CAPM). The formula for CAPM is:
[
\text{Required Return} = \text{Risk-Free Rate} + \beta \times (\text{Market Return} – \text{Risk-Free Rate})
]
Where:
- Risk-Free Rate = 5.4% (given)
- Market Return = 9.4% (given)
- Beta (β) is what we are solving for, and we need to know it to determine the correct answer.
The equation can be simplified to:
[
\text{Required Return} = 5.4\% + \beta \times (9.4\% – 5.4\%)
]
Since the cost of equity is given as 14.2%, we can set that equal to the required return and solve for β:
[
14.2\% = 5.4\% + \beta \times (9.4\% – 5.4\%)
]
Now, let’s solve for β:
[
14.2\% – 5.4\% = \beta \times (9.4\% – 5.4\%)
]
[
8.8\% = \beta \times 4\%
]
[
\beta = \frac{8.8\%}{4\%} = 2.2
]
Therefore, the correct answer is d. 2.2.
Part B: Organizationally-Driven Reason for Outsourcing
The correct answer for an organizationally-driven reason for outsourcing is:
c. Improve effectiveness by focusing on what the firm best does.
Explanation:
Outsourcing is often a strategy used by organizations to improve efficiency and focus on core competencies. Here’s why this is the correct answer:
- Focus on Core Competencies: By outsourcing certain tasks or processes that are not part of the firm’s core competencies, the organization can direct its resources (including time, talent, and capital) to areas where it excels. This improves overall effectiveness and allows the firm to concentrate on its competitive advantages.
- Cost Management: Outsourcing can reduce costs, but this is generally a secondary benefit. The primary reason is usually to improve the firm’s strategic focus and effectiveness. For example, a company specializing in technology might outsource its accounting and administrative functions so it can focus more on product development and innovation.
- Other Reasons:
- While turning fixed costs into variable costs, improving risk management, and increasing flexibility are all valid business reasons for outsourcing, they tend to be more tactical rather than focused on improving a firm’s long-term effectiveness in its core business areas.
- Similarly, associating with superior providers can improve credibility and image, but this doesn’t directly relate to improving effectiveness by focusing on the firm’s own strengths.
The overall objective of outsourcing is to allow firms to concentrate on what they do best, making them more competitive in their specific market.
Would you like me to generate an image related to either part of this question?