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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?
Is housing in this town a(n) normal or inferior good? Explain?
Consider the argument that government spending and borrowing harms long-run economic growth. A. Is this most likely to happen if the private spending crowded out is consumption spending or investment spending.
Calculate the change in consumer’s surplus, change in producer’s surplus, tax revenue, and deadweight loss as a result of the policy change. Illustrate them on a graph.
Effects of wage stickiness and the shape of the aggrate supple curve,effect of expectations on aggragate demand. Phillips Curve, natiral rate of unemployment, expacted inflation , the relationshipe between AS-Ad and the Phillipe Curve.
What is the objective of the entrepreneur when it comes to the use of his or her resources? What is the major function of the middleman? Is the middleman an entrepreneur?
Why does an initial $400 billion annual decrease in consumption spending make income fall by more than $400 billion per year. Explain why an initial change in planned aggregate expenditure results in a much larger change in equlibrium income.
What is the difference between average total cost and average variable cost
The economy of the country of Upland is still recovering from a severe recession and still has an unemployment rate close to 9%. Assume that the government's only concern is to achieve full employment. 1. What type of fiscal policy would you rec..
1) If the desired level of investment spending (I) is greater than the level of national savings (S), are net exports (NX) positive, negative, or zero? Explain the connection between I, S, and NX (in words as well as mathematically).
A group of five students has decided to form a company to publish a guide to eating establishments located in the vicinity of all major college and university campuses in Texas. In planning for an initial publication of 6,000 copies, they estimate..
When Burton Denson graduated with honors from the American Trucking Academy, his father gave him a $350,000 tractor-trailer rig. Recently, Burton was boasting to some fellow truckers that his revenues were typically $25,000 per month
What effect will the distribution have on Samuel’s gross income and tax liability if he invests the $20,000 received in a mutual fund?
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