Reference no: EM131005928
Given 2 (two-period) Jobs with the following cost and flows.
Job A: will cost $50,000 in year 1 and will yield $84,000 in year 2
Job B: will cost $80,000 in year 1 and will yield $120,000 in year 2
Dwight and James are looking at these 2 jobs and will make choices. Job B looks more attractive by using simple arithmetic in a static world; but since these will occur in different periods, we know that the best way to evaluate each one is by getting the net present value of each job using each individual's discount rates. James is a patient and hard-working individual while Dwight is a happy-go-lucky come what may surfer type.
a. Given 2 discount rates of 30% and 8% and knowing Dwight and James' personalities, assign the discount rate appropriate to each individual.
b. Solve for the NPVs of each Job for each individual. (Show your solution).
c. Based on the NPVs, which Job will Dwight pick and which Job will James pick?
d. Solve for the IRR between the two jobs (show your solution). What does this number (IRR) mean for Dwight or James (assuming this is now their discount rate) when they are trying to choose between Jobs A or B?
|
Response be different in the short versus long run
: The new requirements that (most) firms provide health insurance to workers can be thought of as increasing the costs of labor. What kinds of industries will be more likely to respond with large decreases in employment in response to these rules? How ..
|
|
Reduce the price of health care to consumers
: One way to encourage people to spend more on preventative health care is to reduce the price of health care to consumers by decreasing the health insurance copayment. At current copayment levels, if the price elasticity of demand for visits to see th..
|
|
Total costs are the sum of fixed costs and variable costs
: Which of the following statements is correct? a. Long-run total costs are the sum of fixed costs and variable costs. b. Short-run total cost curves are an “envelope” of their respective long-run curves. c. Long-run total cost curves are an “envelope”..
|
|
Monopoly dead weight loss and monopoly profit
: A market with demand Q = 10 - p is supplied by a monopoly with costs C(Q) = 6 + 2Q. Calculate the equilibrium price, output, and monopoly profits. What would be the equilibrium if the market were supplied competitively by firms, and each firm had the..
|
|
Each job using each individuals discount rates
: Dwight and James are looking at these 2 jobs and will make choices. Job B looks more attractive by using simple arithmetic in a static world; but since these will occur in different periods, we know that the best way to evaluate each one is by gettin..
|
|
Explain in terms of the risk-return principle
: Two restaurants are on the same block. One has been opened for 10 years and its a thriving business. The other one has been open for only a year. They both want to expand. When the two owners to to the local bank looking for a loan, which one is like..
|
|
Calculate real wage in home country before and after trade
: Suppose Home and Foreign countries (H and F) trade two goods, G1 and G2, and each country is populated with 2 workers (workers can split work time between two industries). At home, one worker can produce either 1 units of G1 or 2 units of G2 in one d..
|
|
What about gdp in the future
: The US lags behind Germany in providing vocational training (apprentices). It described how Siemens, an important global industrial firm, trains its apprentices. This is very expensive for Siemens and for German Taxpayers. Discuss the impact that thi..
|
|
Would savings in britain increase or decrease
: A recent analysis by Bloomberg Magazine discusses what would happen if England would suddenly leave the European Union, in terms of “shocks” in Consumer expectations, Investment, Credit and Currency. Since this has never happened before, people are u..
|