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The B&E Cooling Technology Company, a maker of automobile air conditioners, faces an impending deadline to phase out the traditional chilling technique, which uses chlorofluorocarbons (CFCs), a family of refrigerant chemicals believed to attack the earth's protective ozone layer. B&E has been pursuing other means of cooling and refrigeration. As a near-term solution, its engineers recommend a cooling technology known as an absorption chiller, which uses plain water as a refrigerant and semiconductors that cool down when charged with electricity. B&E is considering two options: Option 1: Retrofit the plant now to adopt the absorption chiller and continuing to be a market leader in cooling technology. Option 2: Defer the retrofit until the federal deadline, which is three years away. With expected improvement in cooling technology and technical know how, the retrofitting cost will be cheaper then. But there will be tough market competition, and revenues would be less than that from Option 1. The financial data for the two options are as follows: Item Option 1 Option 2 Investment timing Now 3 years from now Initial investment $6 million $5 million System life 8 years 8 years Salvage value $1 million $2 million Annual revenue $15 million $11 million Annual O&M costs $6 million $7 million
(a) What assumptions must be made in order to compare these two options?
(b) If B&E's MARR is 15%, which option is the better choice according to the IRR criterion?
In the 1990s Japan reduced its exports of automobiles to the United States by 28 percent. If you were the manager of a US car dealership, explain how would this affect your pricing strategy.
Describe the point elasticity of demand with respect to advertisement
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Illustrate are some of the clever strategies that landlords might use to create a black market.
Suppose that you are the top marketing manager for the Pepsi-Cola Co. You are engaged in an intense battle for market share in domestic beverage market with Coca-Cola Co.
In an article about the financial problems of the USA today, Newsweek reported that the paper was losing about $20 million a year.
What kind of shocks could have caused this change to the money demand function? Determine the new interest rate and equilibrium level of output.
In October 2004 and 2005, real GDP in the United States increased by 3.6 percent, while nonfarm payroll jobs increased by only 1.4%.
Draw a diagram showing the current situation of the firm. In addition to the above information, suppose the price of the output is $13/unit, if the firm wants to maximize its profit, what should it do? Explain in detail with the aid of a diagram.
Suppose the market for dollars is in equilibrium, then the expected future exchange rate rises. What effect does this have on the current exchange rate?
Elucidate how will this change affect international business. What other industries might be affected by similar technological advancements.
What is opportunity cost of producing a car in Canada? What is the opportunity cost of producing the tonne of wheat in Canada? Describe the relationship between the opportunity costs of two goods.
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