Adams, Incorporated would like to add a new line of business to its existing retail business. The new line of business will be the manufacturing and distribution of animal feeds. This is a major capital project. Adams, Incorporated is aware you an in an MBA program and would like you to help analysis the viability of this major business venture based on the following information:
• The production line would be set up in an empty lot the company owns.
• 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 useful life of 4 years, and it is a MACRS 3-year asset.
• The machinery is expected to have a salvage value of $25,000 after 4 years of use.
• This new line of business will 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 expected to increase by 3% per year due to inflation.
• Net working capital would have to increase by an amount equal to 12% of sales revenues. The firm’s tax rate is 40%, and its overall weighted average cost of capital is 10%. Required:

8. Can you use the Payback method to decide whether this is a good project or
not? Why or why not?

9. Interpret what NPV, IRR, and Profitability Index (PI) mean. Based on your
interpretation, do these indicators suggest the new business line should be
undertaken?

The market for wool in the economy of Odessa is shown in the table below (note that quantities are given in tonnes per year).

Suppose marginal product of labor (MPL) = 0.3*K and wage = $ 2 while the marginal product of capital (MP_K) = 0.7*L and price of capital = $ 1.

(a) What the marginal Rate of technical substitution between labor and capital at L = 50 and K = 100?

(b) What is the relative wage ratio?

(c) Is the input allocation L=50 and K=100 optimal?

1. Let the demand function be Q(d) = 100 – 3P(X). a. What is the own price elasticity of demand when P = 10? b. What is the own price elasticity of demand when P = 20? c. What is the own price elasticity of demand when P = 30? d. Find the inverse demand function and graph the demand curve. Note for each of the questions above whether it is along the price elastic or price inelastic portion of the demand curve. Assume the firm is operating at P = 10 and is thinking about lowering price by 1%. Would you recommend such a price decrease? Provide evidence for your conclusion

UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these characteristics:

The ICU 100 sells for $940 installed, and the ICU 900 sells for $1,650 installed.

Required:

1. What are the current profit margin percentages on both systems?

2. UR Safe’s management believes that it must drop the price on the ICU 100 to $880 and on the ICU 900 to $1,520 to remain competitive in the market. Recalculate profit margin percentages for both products at these price levels and then compute the target cost needed for each product to maintain the current profit margin percentages.

100 grams of boiling water (temperature 100

8. You are making a short sale of a stock at 173 for 100 shares with the expectation that the stock could be $143 in a year. The initial margin is 60% and maintenance margin is 40%.

8A) Determine the collateral needed in the form of cash and loan.

8B) Show this in a balance sheet form and calculate margin.

                                                                Price=173

8C) Show the short sale in a balance sheet format if price falls to 143 and calculate margin.

price: 143

8D) Show the balance sheet and margin if price rises to 193.

Price: 193

8E) At a price of 193 as in 8D, would you get a margin call? Explain.

Please add the explanation.

6. Killnum Corp. announces that the dividend for the next year will be $2.50 per share rather than the originally expected $1.50 per share. From then on, it is expected that dividends will resume their historical constant growth rate of 5% per year. What would you expect to happen to the price of the stock? Ignore any tax effects.

A) The price will likely double.

B) The price will likely rise by less than 100%.

C) The price will likely rise by exactly 50%.

D) The price will remain unchanged.

E) The price will likely rise by the present value of $1.

Aggregate Demand: Draw me an AD graph, start at the equilibrium of Price Level 5 and RGDP at 100.Show me what happens when people feel that the economy is “safer” and the spend more. Assume the shift changes Price Level by 2 and RGDP by 20. What effect from class is this and explain the shift.