EJH Cinemas, a movie theater next to your university, attracts two types of customers: those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area. There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket.
a. What will be the amount of EJH Cinemas’ total revenue if the price is $7 per ticket?
b. What is the amount of consumer surplus if the price is $7 per ticket?
c. What will be the amount of EJH Cinemas’ total revenue if the price is $9 per ticket?
d. What is the amount of consumer surplus if the price is $9 per ticket?
e. If EJH Cinemas decides to practice price discrimination, charging $9 for a standard ticket available to everyone but only $7 for a ticket if you show your university identification (students, faculty, and staff), what will be the movie theater’s total revenue?
f. If EJH Cinemas decides to practice price discrimination, charging $9 for a standard ticket available to everyone but only $7 for a ticket if you show your university identification (students, faculty, and staff), what will be the amount of consumer surplus?
g. If you were in charge of EJH Cinemas, what pricing scheme should you use?
please show the solution.
In: Economics
QUESTION 13
In the short run, a perfectly competitive firm will stay in business as long as:
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Price equals average revenue. |
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marginal revenue is greater than marginal cost. |
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price exceeds average variable cost. |
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price is less than average variable cost. |
QUESTION 14
Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:
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immediately shut down and get out of the industry. |
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continue to produce a quantity such that marginal revenue equals marginal cost. |
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shut down temporarily, in hopes of restarting in the near future. |
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cut price and expand output in hopes of achieving economies of scale |
QUESTION 15
Where is the "short-run shut down point" for a perfectly competitive firm?
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The lowest point of AVC curve. |
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The lowest point of ATC curve. |
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The lowest point of MC curve. |
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It depends. Could be the lowest point of AVC, ATC, or MC curve. |
QUESTION 16
The marginal revenue for a price taker is
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equal to price. |
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less than price. |
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more tha price. |
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unrelated to price. |
In: Economics
The Shoe King
You are the owner and manager of in the beautiful Horizon Mall, just outside of Schaumburg, Illinois. You purchased it from Mr. Bundy on December 31, 2018, for $805,000.
For the year 2019, the average price of a pair of shoes that you sold was $80 and over the year, you averaged selling 1,800 pairs per month.
For the shoes that you sold, you paid your suppliers $950,400.
As part of the sales deal, and so you can continue to use the valuable Al Bundy name, you pay Mr. Bundy a royalty of five percent of all sales.
You pay yourself $65,000 per year. You have 10 employees who average $40,000 per year in salary
The payroll taxes and benefits total 15 percent of all salaries.
The rent and other mall services provided (e.g., security) cost $5,000 per month. Electric costs are $2,100 per month, while your phone and internet access cost $900 per month (total for both).
Advertising efforts were distributed over three media. The store has a billboard near the mall that costs $1,000 per month. Sales announcements and coupons were delivered via direct mail at a cost of $2,000 per month. You spent that same amount ($2,000 per month) for radio advertising.
Other costs include:
Insurance $500 per month
Accounting/legal $1,000 per month
Office supplies $1,250 per month
During the year, you became concerned about your profitability. Hence, you hired a consultant to evaluate your operations. She was paid $10,000.
1) Construct the income statement for 2019. Make sure to include a column showing percentage of sales.
2) What is the gross profit in dollars and on a percentage basis?
-$777,600 -45%
3) What is the operating profit?
4) What was the breakeven sales level for 2019?
5) What was the ROI in 2019?
6) For one pair of Johnston & Murphy Oxford shoes, you pay the supplier $80. Your retail on that pair of shoes is $155. What is your gross profit in dollars on that pair of shoes? What is your markup in dollars? What is your gross profit percentage? What is your markup percentage?
7) Suppose your cost of goods sold in dollars was reduced by 10 percent. What would your gross and operating profits be?
8) In 2020, you project a 20 percent increase in sales. You also plan to give a 6 percent wage increase to your employees, although you intend to pay yourself the same amount as in 2019. The other operating costs remain the same, except that you do not expect to hire the consultant again. The royalty rate remains the same. The cost of goods sold is projected to be 49.50%. What is the projected gross profit in dollars for 2020? What is the projected operating profit in dollars?
In: Accounting
McNabb Construction Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Reid, the vice-president of finance, has given you the following information and has asked you to compute the weighted average cost of capital.
The company currently has an outstanding bond with a 9.5 percent coupon rate and another bond with a 7.8 percent rate. The firm has been informed by its investment dealer that bonds of equal risk and credit ratings are now selling to yield 10.5 percent. The common stock has a price of $98.44 and an expected dividend(D1) of $3.15 per share. The historical growth pattern (g) for dividends is as follows:
| $2.00 | |
| 2.24 | |
| 2.51 | |
| 2.81 | |
The preferred stock is selling at $90 per share and pays a dividend of $8.50 per share. The corporate tax rate is 30 percent. The flotation cost is 2 percent of the selling price for preferred stock. The optimum capital structure for the firm is 30 percent debt, 10 percent preferred stock, and 60 percent common equity in the form of retained earnings.
a. Compute the historical growth rate.(Round your intermediate calculations to 2 decimal places. Round the final to 2 decimal places.)
b. Compute the cost of capital for the individual components in the capital structure. (Round growth rate to nearest whole number. Round the final answers to 2 decimal places.)
| Debt (Kd) | 7.35 7.35 Correct % |
| Preferred stock (Kp) | 9.64 9.64 Correct |
| Common equity (Ke |
c. Calculate the weighted cost of each source of capital and the weighted average cost of capital. (Round your intermediate calculations to 2 decimal places. Round the final answers to 2 decimal places.)
| Debt (Kd) | 2.21 2.21 Correct % |
| Preferred stock (Kp) | 0.96 0.96 Correct |
| Common equity (Ke) | 7.32 7.32 Incorrect |
| Weighted average cost of capital(Ka) | 10.49 10.49 Incorrect % |
In: Finance
Edwards Construction currently has debt outstanding with a market value of $103,000 and a cost of 12 percent. The company has EBIT of $12,360 that is expected to continue in perpetuity. Assume there are no taxes.
a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.)
a-2. What is the debt-to-value ratio? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
b. What are the equity value and debt-to-value ratio if the company's growth rate is 4 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.)
c. What are the equity value and debt-to-value ratio if the company's growth rate is 8 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.)
In: Finance
DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 11%. What is the modified internal rate of return of this project?
In: Finance
Irwin, Inc., constructed a machine at a total cost of $58 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $3 million. At the beginning of 2018, Irwin decided to change to the straight-line method. Ignoring income taxes, prepare the journal entry relating to the machine for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Journal entry worksheet
Record the entry relating to the machine for 2018.
Note: Enter debits before credits.
|
In: Accounting
Edwards Construction currently has debt outstanding with a market value of $82,500 and a cost of 7 percent. The company has EBIT of $5,775 that is expected to continue in perpetuity. Assume there are no taxes.
a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.) Calculate Value of equity
a-2. What is the debt-to-value ratio? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Calculate Debt-to-value ratio
b. What are the equity value and debt-to-value ratio if the company's growth rate is 3 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.) Equity value $ Debt-to-value
c. What are the equity value and debt-to-value ratio if the company's growth rate is 5 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.) Calculate Equity value $ Debt-to-value
In: Finance
Edwards Construction currently has debt outstanding with a
market value of $360,000 and a cost of 7 percent. The company has
an EBIT of $25,200 that is expected to continue in perpetuity.
Assume there are no taxes.
a. What is the value of the company’s equity and
the debt-to-value ratio? (Do not round intermediate
calculations. Leave no cells blank - be certain to enter "0"
wherever required. Round your debt-to-value answer to 3 decimal
places, e.g., 32.161.)
| Equity value | ? |
| Debt-to-value | ? |
b. What is the equity value and the debt-to-value
ratio if the company's growth rate is 3 percent? (Do not
round intermediate calculations. Round your equity value to 2
decimal places, e.g., 32.16, and round your debt-to-value answer to
3 decimal places, e.g., 32.161.)
| Equity value | ? |
| Debt-to-value | ? |
c. What is the equity value and the debt-to-value
ratio if the company's growth rate is 5 percent? (Do not
round intermediate calculations. Round your equity value to 2
decimal places, e.g., 32.16, and round your debt-to-value answer to
3 decimal places, e.g., 32.161.)
| Equity value | ? |
| Debt-to-value | ? |
In: Finance
Edwards Construction currently has debt outstanding with a market value of $82,500 and a cost of 7 percent. The company has EBIT of $5,775 that is expected to continue in perpetuity. Assume there are no taxes.
a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.) Value of equity
a-2. What is the debt-to-value ratio? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Debt-to-value ratio
b. What are the equity value and debt-to-value ratio if the company's growth rate is 3 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.) Equity value $ Debt-to-value
c. What are the equity value and debt-to-value ratio if the company's growth rate is 5 percent? (Do not round intermediate calculations and round your "Debt-to-value" answer to 3 decimal places, e.g., 32.161.) Equity value $ Debt-to-value
In: Finance