Reference no: EM131315751
Consider a private value auction with four bidders and two identical goods. Supposeeach bidder demands just a single unit. The values for bidders 1, 2, 3, and 4 are v1 = 32, v2 =26, v3 = 45, and v4 = 22. The seller values each unit at v=20 (only seller knows his valuation).
a. In a Vickrey (second-price sealed bid) auction, which bidder(s) get the two units andhow much do they pay? Is the outcome Pareto efficient? (Hint: The auction will be hold twice to sell each unit).
b. Now suppose that the bidders have positive but diminishing values for the secondunit as well. In particular, the values are v1 = (32, 19), v2 = (26, 18), v3 = (45, 24),and v4 = (22, 14), where the first number is the value for the first unit and thesecond number is the value for the second. In a Vickrey auction, which bidder(s) getthe two units and how much do they pay? Is the outcome Pareto efficient? (Hint:The auction will be hold twice to sell each unit).
c. Suppose that the bidder’s valuations are still as described in part b above, and theseller actually knows bidders’ true valuations. Can the seller increase its profits byusing a different type of auction? If yes, prove your argument by giving a numericalexample. If no, explain why not.
|
What was charge for depreciation and amortization
: Talbot Enterprises recently reported an EBITDA of $6.0 million and net income of $1.5 million. It had $2.4 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?
|
|
Annual cash flows-what is the npv of the project
: A project that provides annual cash flows of $2,950 for nine years costs $9,800 today. At a required return of 9 percent, what is the NPV of the project? At a required return of 27 percent, what is the NPV of the project? At what discount rate would ..
|
|
What is weighted average cost of capital
: A company has 30 million shares outstanding trading for $8 per share. It also has $90 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weig..
|
|
Events in the economy-market-management bonuses
: Comment on the Basic Financial Goal of Corporations - Maximization of Shareholder Wealth. Take into consideration the events in the economy/market, management bonuses, bailouts, etc....Has anyone been true to this goal? Is it still THE basic goal or ..
|
|
Consider private value auction with four bidders
: Consider a private value auction with four bidders and two identical goods. Supposeeach bidder demands just a single unit. The values for bidders 1, 2, 3, and 4 are v1 = 32, v2 =26, v3 = 45, and v4 = 22. The seller values each unit at v=20 (only sell..
|
|
How much value does dollar billion investment create-destroy
: Alcoa's weighted average cost of capital was around 12%, but its investments were earning returns closer to 5%. From 2010 to 2012, Alcoa invested roughly $1 billion in capital expenditures. Calculate the NPV of that investment using a 12% discount ra..
|
|
Explain the importance of pareto improvement
: Explain the importance of Pareto Improvement to a governmental unit. A public project produces the following individual benefits for stakeholders stated in terms of present values when an appropriate social discount rate of 15% is used: Al = $12,000;..
|
|
Triangular arbitrage by converting your dollars to euros
: Triangular Arbitrage. You are given these quotes by the bank: You can sell Canadian dollars (C$) to the bank for $.70. You can buy Canadian dollars from the bank for $.73. The bank is willing to buy dollars for 0.9 euros per dollar. Estimate your pro..
|
|
Auction out construction project
: Consider an auction in which the government wants to auction out a construction project, to the lowest bidding contractor. A group of bidders (firms) are attending theauction but none of the firms knows for sure how many other firms will participate ..
|