A monopoly has a marginal cost of zero and faces two groups of consumers. At first, the monopoly could not prevent resale, so it maximized its profit by charging everyone the same price,p = $5. No one from the first group chose to purchase. Now the monopoly can prevent resale, so it decides to price discriminate. Will total output expand? Why or why not? What happens to profit and consumer surplus?

Q2 (Essential to cover) Suppose the following bonds are trading in the market. Bond Time-to-Maturity Face value Coupon rate Price E 1 $ 100 0% $ 94.79 F 2 $ 100 2% $ 92.25 G 4 $ 100 0% $ 74.88 In addition to the bonds above, you also observe the 1-year forward rate in 2 year’s time 2f3 is 8.50%. You wish to price Bond H, which is 4-year 10% coupon bond with a face value of $100. Assume all bonds (and the forward rate) are risk-free and that Bond F and Bond H are annual coupon bonds. a. Infer the term structure of interest rates: y1, y2, y3 and y4 (i.e. derive the pure yield curve for years 1-4). b. Price Bond H of the pure yield curve. c. Based on the pure yield curve, infer the 2-year forward rate commencing in 2 year’s time 2f4. d. Assume the Liquidity Preference Hypothesis holds and the annual liquidity premium is flat at 1.00% for all t. What is the expected future 1-year spot rate (i.e. the short rate) in 3 year’s time E(3y4)? e. Assume the Expectations Hypothesis holds. What is the expected 1 year future spot rate (i.e. the short rate) in 1 year’s time E(1y2)?

9. If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit?

a. $1.
b. $3.
c. $1,000.

d. $3,000.

e. $10,000.

10. A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?

a. Shut down.
b. Increase output.
c. Stay at current output.

d. Decrease output.
e. Decrease price.

11. When choosing the production level for tomorrow you find that at an output of 100 units, the total variable costs are $20,000 and the average fixed cost is only $50. If the market price is $200, you should:

a. b or e.
b. shut down.
c. produce more than 100 units.

d. produce fewer than 100 units.

e. produce where MC = MR.

12. If ABC Printing is producing an output level of 100, where MR is $5 and MC is $3, then the firm is:

a. maximizing total profit.
b. making too much profit.
c. making $200 total profit.
d. making $200 total loss.
e. making an unknown amount of profit or loss.

Problem D. Take 3 semi-annual coupon paying bonds with face values of $100. They carry D1 percent, D2 percent and D3 percent coupons, mature in ½ year, 1 year, and 1 ½ year, with current market prices of D4, D5, and D6, respectively. Find the “crude” (which does not use regression) term structure of discount factor, spot interest rate and forward interest rate. Assume semi-annual compounding and write your answers for:

23. Half-year discount factor.
24. One-year discount factor.
25. One and half-year discount factor.
26. Half-year spot rate.
27. One-year spot rate.
28. One and half-year spot rate.
29. Forward rate for period (0.5 – 1.0) year.
30. Forward rate for period (1.0 – 1.5) year.
31. What is the current fair price of a 1.5 year bond with face value 100, carrying an annual coupon of 10 percent, paid two times per year?
32. What is the current fair price of a 1 year zero coupon bond with face value 100?
33. What is the current fair price of a 6-month strip with face value 100?

D1 = 11
D2 =14
D3 = 9
D4 = 103
D5 = 107
D6 = 107

Please show work.

Shrieves Casting Company is considering adding a new line to its product mix, and the company hires you to conduct capital budgeting analysis. The production line would be set up in unused space in Shrieves' main plant. The machinery’s invoice price would be approximately $200,000; another $10,000 in shipping charges would be required; and it would cost an additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and would be a class 8 with a 20% CCA rate. The machinery is expected to have a salvage value of $25,000 after 4 years of use. The new line would generate incremental sales of 1,250 units per year for four years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm’s net operating working capital would have to increase by an amount equal to 12% of sales revenues. The firm’s tax rate is 28%, and its overall weighted average cost of capital is 10 percent. Suppose the firm had spent $100,000 last year to rehabilitate the production line site.Assume that the plant space could be leased out to another firm at $25,000 a year.

What is the project's after-tax NPV? Should the project proceed?

Prepare a report including capital budgeting, risk analysis and comments.

Shrieves Casting Company is considering adding a new line to its product mix, and the company hires you, a recently business school graduate, to conduct capital budgeting analysis. The production line would be set up in unused space in Shrieves' main plant. The machinery’s invoice price would be approximately $200,000; another $10,000 in shipping charges would be required; and it would cost an additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and would be a class 8 with a 20% CCA rate. The machinery is expected to have a salvage value of $25,000 after 4 years of use.                                                                                                                                                                                                              

The new line would generate incremental sales of 1,250 units per year for four years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm’s net operating working capital would have to increase by an amount equal to 12% of sales revenues. The firm’s tax rate is 28%, and its overall weighted average cost of capital is 10 percent. Suppose the firm had spent $100,000 last year to rehabilitate the production line site.Assume that the plant space could be leased out to another firm at $25,000 a year.     

What is the project's after-tax NPV? Should the project proceed? Prepare a report including capital budgeting, risk analysis and comments.

Consider a supplier order allocation problem under multiple sourcing, where it is required to buy 2000 units of a certain product from three different suppliers. The fixed set-up cost (independent of the order quantity), variable cost (unit price), and the maximum capacity of each supplier are given in Table 5.15 (two suppliers offer quantity discounts). The objective is to minimize the total cost of purchasing (fixed plus variable cost). Formulate this as a linear integer programming problem. You must define all your variables clearly, write out the constraints to be satisfied with a brief explanation of each and develop the objective function. table : 5.15 supplier data for exercise 5.5

supplier / fixed cost/ capacity /unit price

1 / $100 / 600 unit / $10 per unit for first 300 units; $7 per unit for remaining 300 units

2 / $500 / 800 units/ $2 per unit for all 800 units

3 / $300 / 1200 units / $6 per unit for first 500 units;  $4 per unit for remaining 700 units

Reformulate the problem under the assumption that both suppliers 1 and 3 offer all units discount, as described in the following;

-Supplier 1 charges $10 per unit for orders up to 300 units and for orders more than 300 units, the entire order will be priced at $7 unit.

-Supplier 3 charges $6 per unit for orders up to 500 units and for orders more than 500 units, the entire order will be priced at $4 per unit.

Mini Case Ch. 11

Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line would be set up in unused space in Shrieves’s main plant. The machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and Shrieves has obtained a special tax ruling that places the equipment in the MACRS 3-year class. The machinery is expected to have a salvage value of $25,000 after 4 years of use.

The new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are both expected to increase by 3 percent per year due to inflation.

Further, to handle the new line, the firm’s net operating working capital would have to increase by an amount equal to 12 percent of sales revenues. The firm’s tax rate is 25 percent, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project r, is 10%.

D. calculate annual net operating profit after sales (NOPAT). Then calculate the operating cash flow.

Shrieves Casting Company is considering adding a new line to its product mix, and the company hires you, a recently business school graduate, to conduct capital budgeting analysis. The production line would be set up in unused space in Shrieves' main plant. The machinery’s invoice price would be approximately $200,000; another $10,000 in shipping charges would be required; and it would cost an additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and would be a class 8 with a 20% CCA rate. The machinery is expected to have a salvage value of $25,000 after 4 years of use.                                                                                                                                                                                                              

The new line would generate incremental sales of 1,250 units per year for four years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm’s net operating working capital would have to increase by an amount equal to 12% of sales revenues. The firm’s tax rate is 28%, and its overall weighted average cost of capital is 10 percent. Suppose the firm had spent $100,000 last year to rehabilitate the production line site.Assume that the plant space could be leased out to another firm at $25,000 a year.     

Prepare a report including risk analysis, and comments. ( I appreciate it if you give me the detail of calculating and Also RISK Analysis, I have a problem in calculating that. )