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BP recently evaluated a proposal for switching to a new system of storage for refined petroleum products. Based on their analysis of the project, the initial investment required for the project is 50 million dollar, and the project is expected to yield $10 million in returns (the value of the additional product available for sale, evaluated at the expected price of petroleum products) over a 9 year period).a. What is the NPV of this project, evaluated at a 10% discount factor and at a 15 percent discount factor?b. Historically, BP has used interest rates (discount factors) of 10% and 15% to evaluate investment projects; these rates incorporate BP's cost of capital and a risk-assessment factor. Generally, BP has used a 10% rate to evaluate safer and a 15% rate to evaluate riskier projects. Does this project appear (to you) to fall into the "safer" or "riskier" category? Why? How does that influence your choice of which rate is the "correct" rate to use?c. Prices of petroleum products have been highly volatile. (Since 1994, the US average price (weekly) of premium gasoline has averaged $1.89 per gallon, with a standard deviation of $0.73; for regular, the average weekly price since 1990 has been $1.56, with a standard deviation of $0.68; for diesel, an average of $1.76 with a standard deviation of $0.83). Suppose you expect the volatility of petroleum product prices to increase significantly over the next nine years (i.e., an unchanged mean, but with standard deviations that are $1.08 for premium, $1.01 for regular, and $1.25 for diesel). What effect is this likely to have on your evaluation of this project? Why?
Assume that the manager of a company operating in competitive market has estimated the company's average variable cost function to be AVC=4000-5Q+0.002Q^2
A company is practicing 1st degree price discriminaiton. The demand for the company's product is defined as QD = 20-2P. If the firm maximizes profits by selling 4 unites of output
The hourly wage rate is $6, hourly rentail rate for capital is $8. The production function I found to be q=10K^.5L^.5 The captital if fixed at 225 hours in the short-run.
Say there is a natural disaster which wipes out all of tomato plantation of one country. so there is a drastic increase in the price say from $6 to $15 a kilo
BK books is an online retailer that also has 10,000 bricks and mortar outlets worldwide. You are a risk neutral manager within Corporate Finance Division and are in dire need of a new financial analyst.
Use the following information of a company's total cost schedules to calculate its average variable cost, average fixed cost, average total cost, and marginal cost schedules.
Rochester Metro Area was hit with a major ice storm in 2003. Suppose that before ice storm of 2003, the weekly demand and supply for ice in the Rochester Metro Area were given by following equations:
Consider a manufacturer with 2-factories. They can make at either factory or both. However, we need to consider the quantities that will be produced at every factory.
A monopolist produces a single homogeneous good, which he sells in two marketplace between which discrimination is possible. His total cost function is;
Discuss and explain two factors that would increase demand for labor. Suppose if the market price of the good or service that a firm produces increases, what happen to the demand of labor
Today's Friday night, and you are just about to leave your room to attend a party. However, a copy of New York Times catches your eye.
Explain why is advertising prevalent in many oligopolies, especially when industry demand is inelastic and illustrate your answer by supposing that with advertising, a company demand curve has price elasticity of -1.5 and without advertising,
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