3. James is a producer in a monopoly industry. His demand curve, total revenue, curve, marginal revenue curve and total cost curve are given as follows:

Q=100-4P

TR=25Q-0.25Q²

MR=25-0.5Q

TC=6Q

MC=6

a.How much output will James produce?

b. What price will James charge per unit of output?

c. How much profit will James make?

d. If this was a competitive firm. Calculate the profit maximizing price and quantity and compare with price and quantity under monopoly.

e. Calculate the amount of deadweight loss incurred because James is a monopolist and not perfectly competitive firm.

Gentry Inc. is a mid-sized tech firm (200 employees and $300 million in revenue) and has been privately held since the firm’s inception ten years ago. The organization’s board of directors is keen on expanding the operations globally to take advantage of a growing market. Based on reports from the research and development team, the organization can increase its profitability metrics by 15 to 25% if it expands the operations to China, Japan, and Germany. Becoming a multinational organization will not be easy. To finance this expansion, the board of directors has decided to take the organization public and issue some bonds to raise an additional $50 million. The research team has already determined that the organization meets the financial requirements outlined by the Securities Exchange Commission. The goal is to maximize the Initial Public Offering (IPO), and the leadership must efficiently manage the capital, measure the risk of the investments, and ensure the financial metrics are robust relative to similarly sized organizations.

Determine how each of the following risk exposures affects the international expansion of Gentry.

1. Transaction risk

2. Translation risk

3. Economic risk

Include how you would use sensitivity and scenario analysis to make your recommendation. Spell out the advantages and disadvantages of each method.

Discuss whether it is important to differentiate between Revenue earned from an Exchange and Non-exchange transaction. Provide reasons for your answer.

John Jones owns and manages a café whose annual revenue is $50 000. Annual expenses are as follows:

                Interest on loan for equipment            $10 000

1. Calculate John's annual accounting profit.                                        
2. John could earn $10 000 per year as a recycler of aluminium cans. However, he prefers to run the café. In fact, he would be willing to pay up to $2750 per year to run the café rather than to recycle. Calculate his opportunity cost of running the café. Is the café making an economic profit (calculate the profits)? Should John

                stay in the café business? Explain.                                                    

3. Suppose the café's revenues and expenses remain the same, but recyclers' earnings rise to $11 000 per year. Calculate his new opportunity cost. Is the café still making an economic profit (calculate the profits)? Explain.
4. Suppose John had not had to get a $100 000 loan at an annual interest rate of 10 per cent to buy equipment, but instead had invested $100 000 of his own money in equipment. HOW would your answer to parts (a) and (b) change  

With reference to your answer in Question 3(a) above, if John can earn $10 000 a year as a recycler, and he likes recycling just as well as running the café, how much additional revenue would the café have to collect each year to earn a normal profit?

[Hint: To earn a normal profit, Accounting profit = Implicit Cost]

Saudi Arabia has pegged its currency to the US dollar. It uses oil revenue to spend on imports. How does the drop in oil prices affect the SAR/USD exchange rate? (SAR= Saudi Riyal)

Hospital chain HCA relied heavily on revenue growth in its effort to take the firm private. On July 24, 2006, management again announced that it would “go private” in a deal valued at $33 billion, including the assumption of $11.7 billion in existing debt. Would you consider a hospital chain a good or bad candidate for an LBO? Explain your answer.

Suppose Company A has revenue $45 million this year and we assume that its future performance will be tracked relative to sales as follows:

Sales growth and the net profit margin are projected by year as shown in the following table:

Fixed capital investment net of depreciation is projected to be 25% of the sales increase in each year.

Working capital requirements are 8.0% of the projected dollar increase sales in each year. Debt will finance 30% of the investments in net capital and working capital.
Risk free rate is 3%, beta equity is 1.1, and market return is 7%
Calculate the value of the equity of this company.

4. Given the elasticity, determine whether increasing/decreasing the price will increase/decrease the revenue for a firm. For instance, let's say that the price elasticity of demand is -2 between P=8 and P=10. Would a firm's revenue increase if it raises its price from 8 to 10? If you already know the price elasticity, this question does not require calculation.

Discuss Pricing and Elasticity as it relates to Total Revenue.

• What decisions does price elasticity allow firms to make regarding the pricing of its products?
  
• When does the firm raise prices?
  • Lower prices?
  • Give examples of goods that are perfectly inelastic, explain why?
  • Give examples of goods that are perfectly elastic, explain why?
    
• What is peculiar about unit elasticity?

Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

       Current Year        Previous Year
Sales $450,000 $387,000
Cost of goods sold 270,000 212,850
Selling expenses 72,000 69,660
Administrative expenses 76,500 61,920
Income tax expense 13,500 15,480

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

Innovation Quarter Inc.
Comparative Income Statement
For the Years Ended December 31
Current year Amount Current year Percent Previous year Amount Previous year Percent
Sales $450,000 % $387,000 %
Cost of goods sold 270,000 % 212,850 %
$ % $ %
Selling expenses 72,000 % 69,660 %
Administrative expenses 76,500 % 61,920 %
$ % $ %
% %
Income tax expense 13,500 % 15,480 %
$ % $ %

b. The vertical analysis indicates that the cost of goods sold as a percent of sales   by 5 percentage points, while selling expenses   by 2 percentage points, and administrative expenses   by 1 percentage points. Thus, net income as a percent of sales   by 3 percentage points.