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A generous university benefactor has agreed to donate a large amount of money for student scholarships. The money can be provided in one lump sum of $12 million in Year 0 (the current year), or in parts, in which $7 million can be provided at the end of Year 1, and another $7 million can be provided at the end of Year 2. Describe your answer for each item below in complete sentences, whenever it is necessary. Show all of your calculations and processes for the following points: a. Assuming the opportunity interest rate is 8%, what is the present value of the second alternative mentioned above? Which of the two alternatives should be chosen and why? b. How would your decision change if the opportunity interest rate is 12%? c. Provide a description of a scenario where this kind of decision between two types of payment streams applies in the “real-world” business setting. Problem 2: The San Diego LLC is considering a three-year project, Project A, involving an initial investment of $80 million and the following cash inflows and probabilities: Year 0 Year 1 Year 2 Year 3 Probability Cash Flow ($ mil.) Probability Cash Flow ($mil.) Probability Cash Flow ($ mil.) 0.2 50 0.1 60 0.3 70 0.3 40 0.2 50 0.4 60 0.4 30 0.3 40 0.1 50 0.1 20 0.4 30 0.2 40 Initial Investment $80 mil. Discount Rate 8% Describe your answer for each question in complete sentences, whenever it is necessary. Show all of your calculations and processes for the following points: a. Describe and calculate Project A’s expected net present value (ENPV) and standard deviation (SD), assuming the discount rate (or risk-free interest rate) to be 8%. What is the decision rule in terms of ENPV? What will be San Diego LLC’s decision regarding this project? Describe your answer. b. The company is also considering another three-year project, Project B, which has an ENPV of $32 million and standard deviation of $10.5 million. Project A and B are mutually exclusive. Which of the two projects would you prefer if you do not consider the risk factor? Explain. c. Describe the coefficient of variation (CV) and the standard deviation (SD) in connection with risk attitudes and decision making. If you now also consider your risk-aversion attitude, as the CEO of the San Diego LLC will you make a different decision between Project A and Project B? Why or why not?
A firm manufactures a product that it sells for $100. It sells 1000 units per week. What is its total revenue? It costs the firm $80 to produce a unit. At its current short-run level of production, a firm’s average variable costs equal $20, and its a..
A decrease in the wage rate
Assume that the government increases its spending by $100 million to stimulate demand. In the long run, the effect of this spending is to
Derive the supply curve for this individual firm. If market price is equal to p=40 what quantity would be supplied? What would be quantity supplied if p=20? With free entry and exit and identical firms what would be the long term supply curve for thi..
What makes it conceivable for a country to experience constant debt to GDP ratio and at the same time experience continual government budget deficits is: Government budget surplus or deficit is: A rise in the government budget deficit will have a :
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The price of gasoline has fallen recently which has lowered shipping costs for most of the inputs firms use. Determine how this would affect aggregate demand (AD) and/or short-run aggregate supply (SRAS) and the effect that would have on the aggregat..
The real interest rates and real exchange rates are constant and equal in North Country and South Country. The Fisher equation and purchasing-power parity hold in both countries. If the nominal interest rate is 8 percent in North Country and 10 perce..
q1. recognize minimum 1 important entrepreneur that you would consider an entrepreneurial legend and explain why you
Suppose production function for burritos at Chipotle is Q =4k^1/2 L^1/2.They currently own 4 units of capital and are not able to change this during the short run. The rental rate of capital is $10 and the wage rate is $20. What is Chipotle's short r..
Suppose you are buying a car. You go to one dealer who works a deal in which you would pay $3,740 each year for three (3) for the car. Another deal gives you a deal in which you would pay $2,870 each year for the four (4) years. Which is the better d..
Oftentimes, businesses target their customer service departments as costs to be eliminated (to which I agree to an extent). Customer service costs, however, are tied to quality, rework, pride in product, employee turnover, and a myriad of other varia..
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