Unit Produced Time to manufacture (hours) 1 500 2 425
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
A firm has recently added a new product to their offerings. Manufacturing reports that production is going smoothly and factory workers are becoming familiar with the manufacture of this product. All expectations are that the current rate of learning will continue and the manufacture of future units will be more efficient (i.e., take less time). The following shown table shows the results for the first two units produced. The firm has an order for two additional units. Assuming the pattern of learning curve continues (same rate): Solve, a. At what rate is learning occurring? b. How long will it take to produce the fourth unit? c. If the labor rate is $15 per hour, what is the cumulative average labor cost per unit for the first four units produced?
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