Hat Tricks Company (HTC) is a Buffalo, New York, manufacturer of hats and gloves. Recently, the company purchased a new machine to aid in producing the hat product lines. Production efficiency on the new machine increases with the workforce experience. It has been shown that as cumulative output on the new machine increases, average labor time per unit decreases up to the production of at least 3,200 units. As HTC’s cumulative output doubles from a base of 100 units produced, the cumulative average labor time per unit declines by a learning rate of 90%.

HTC has developed a new style of men’s hat to be produced on the new machine. One hundred of these hats can be produced in a total of 10 labor hours. All other direct costs to produce each hat are $25 per hat, excluding direct labor cost. Direct labor cost per hour is $84. Fixed costs are $8,000 per month, and HTC has the capacity to produce 3,200 hats per month.

Required:

HTC plans to set the selling price for the new men’s hat at 200% of direct production cost. If the company is planning to sell 100 hats, what is the selling price? If the plan is to sell 800 hats, what should be the selling price? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Suppose in Pakistan, all the firms are identical with identical cost curves which mean
industry is perfectly competitive. Now please consider this following information about the
industry: A representative firm’s total cost is given by the equation TC = 100 + q2 + q where
q is the quantity of output produced by the firm. You also know that the market demand for
this product is given by the equation P = 1000 – 2Q where Q is the market quantity. In
addition you are told that the market supply curve is given by the equation P = 100 + Q.
a. What is the equilibrium quantity and price in this market given this information?
b. The firm’s MC equation based upon its TC equation is MC = 2q + 1. Given this information
and your answer in part (a), what is the firm’s profit maximizing level of production, total
revenue, total cost and profit at this market equilibrium? Is this a short-run or long-run
equilibrium? Explain your answer.
c. Given your answer in part (b), what do you anticipate will happen in this market in the
long-run?
d. In this market, what is the long-run equilibrium price (breakeven or MC=ATC) and what
is the long-run equilibrium quantity for a representative firm to produce? Explain your
answer?
e. Given the long-run equilibrium price you calculated in part (d), how many units of this
good are produced in this market?

Hat Tricks Company (HTC) is a Buffalo, New York, manufacturer of hats and gloves. Recently, the company purchased a new machine to aid in producing the hat product lines. Production efficiency on the new machine increases with the workforce experience. It has been shown that as cumulative output on the new machine increases, average labor time per unit decreases up to the production of at least 3,200 units. As HTC’s cumulative output doubles from a base of 100 units produced, the cumulative average labor time per unit declines by a learning rate of 80%.

HTC has developed a new style of men’s hat to be produced on the new machine. One hundred of these hats can be produced in a total of 40 labor hours. All other direct costs to produce each hat are $12 per hat, excluding direct labor cost. Direct labor cost per hour is $25. Fixed costs are $8,000 per month, and HTC has the capacity to produce 3,200 hats per month.

Required:

HTC plans to set the selling price for the new men’s hat at 200% of direct production cost. If the company is planning to sell 100 hats, what is the selling price? If the plan is to sell 800 hats, what should be the selling price? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Compost Science Inc. (CSI) is in the business of converting Boston’s sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce CSI to remain in business, the Metropolitan District Commission (MDC) has agreed to pay whatever amount is necessary to yield CSI a 14% book return on equity. At the end of the year, CSI is expected to pay a $3 dividend. It has been reinvesting 40% of earnings and growing at 3% a year.

a-1. Suppose CSI continues on this growth trend. What is the expected long-run rate of return from purchasing the stock at $100? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number.)

a-2. What part of the $100 price is attributable to the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Now the MDC announces a plan for CSI to treat Cambridge sewage. CSI’s plant will, therefore, be expanded gradually over five years. This means that CSI will have to reinvest 80% of its earnings for five years. Starting in year 6, however, it will again be able to pay out 60% of earnings. What will be CSI’s stock price once this announcement is made and its consequences for CSI are known? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

This question has 5 parts.

a. Assume that currently the nominal interest rate is 4% and the price of your favorite good today is P = $100 per unit. You lend $10,000 for a year to a friend. If instead you spent the money today, you would be able to buy 100 units of your favorite good.

b. Next year, your friend will pay you back 10,400 dollars.

c. Next year, the price of your favorite good increases by 1 percent. With the money that your friend pays you back next year, you will be able to buy 102.97 units of your favorite good.

d. The amount of the good that you can buy with your money is called the purchasing power of the money. As a result of your lending, the purchasing power of your money will increase by ____ percent.

If you had not lent your money and instead kept it under your mattress, its purchasing would decrease by ____ percent (enter this percentage reduction as a positive number).

e. Suppose that you lent your money at 4%, but next year the price of the good increased by 5%. Then the purchasing power of your money would decrease by ____ percent (enter this percentage reduction as a positive number).

However, if you had kept the money under your mattress, its purchasing power would decrease by ____ percent.

On February 2, 2016, an investor held some Province of Ontario stripped coupons in a self-administered RRSP at ScotiaMcLeod, an investment dealer. Each coupon represented a promise to pay $100 at the maturity date on February 2, 2022, but the investor would receive nothing until then. The value of the coupon showed as $89.11 on the investor’s screen. This means that the investor was giving up $89.11 on February 2, 2016, in exchange for $100 to be received just less than six years later.

a. Based upon the $89.11 price, what rate was the yield on the Province of Ontario bond? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Rate of return             %

b. Suppose that on February 2, 2017, the security’s price was $91.00. If an investor had purchased it for $89.11 a year earlier and sold it on this day, what annual rate of return would she have earned? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Annual rate of return             %

c. If an investor had purchased the security at the market price of $91.00 on February 2, 2017, and held it until it matured, what annual rate of return would she have earned? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Annual rate of return             %

Perpetual Inventory Using FIFO Beginning inventory, purchases, and sales data for portable DVD players are as follows: Apr. 1 Inventory 57 units @ $94 10 Sale 43 units 15 Purchase 23 units @ $100 20 Sale 19 units 24 Sale 8 units 30 Purchase 24 units @ $104 The business maintains a perpetual inventory system, costing by the first-in, first-out method. Determine the cost of the merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3. a. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Merchandise Sold Unit Cost column and in the Inventory Unit Cost column. Cost of the Merchandise Sold Schedule First-in, First-out Method Portable DVD Players Date Quantity Purchased Purchases Unit Cost Purchases Total Cost Quantity Sold Cost of Merchandise Sold Unit Cost Cost of Merchandise Sold Total Cost Inventory Quantity Inventory Unit Cost Inventory Total Cost Apr. 1 $ $ Apr. 10 $ $ Apr. 15 $ $ Apr. 20 Apr. 24 Apr. 30 Apr. 30 Balances $ $ b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?

1-20 years

Calculate the free cash flows for the extended life of 40 years

1-20 years

5 turbines

Average hourly power output per turbine: 0.31 MWh

Operational days per year 363.00 days

Capital expenditure per turbine $3,000,000.00

Life 20.00 years (Turbines will be dismantled at end of 20 years if not overhauling.)

Salvage per turbine $200,000.00 (Market value at end of 20 years.)

Expected price per MWh of power in first year $80.00 (Price per MWh is then expected to increase at inflation.)

Expected price per MWh of renewable energy certificate in first year $70.00 (For each MWh generated by the wind turbines, SAI will be issued with a renewable energy certificate which it can sell to electricity retailers who have sold renewable energy to customers. Price of certificates is then expected to increase at inflation.)

Expected operating expenses per turbine in first year $100,000.00 (Annual operating expenses then expected to increase by inflation.)

Depreciation method- Straight Line

Working capital- $0 (Given service agreements, there is no working capital requirement)

Inflation Rate (p.a.) 0.026

Tax Rate 0.30 (Tax payment occurs at the same year as income)

Discount Rate 0.10

Additional Information to extend life to 40 years

Overhaul cost at end of 20th year per turbine $1,500,000.00

Life of overhaul 20.00 years

Salvage $0

Depreciation method of overhaul cost Straight Line (Overhaul expense is capitalised and then depreciated over extended life.)

Treatment of existing capital expenditure (e.g. original outlay) $0 (Remaining book value of original capital expenditure written down to zero in year 20.)

Calculate EBITDA, depreciation and gain/loss of sale for the extended life

Use the following information to answer the following questions. Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.

a) What is the NAV of both funds?

b) To what level should the price of Microsoft shares decline in order for the NAV of Morningstar fund to remain constant if the price of P&G rises to $40?

c) If the price of P&G shares rises to $35 and the price of Microsoft falls to $40.00, what is the new NAV of both funds? Assume Eveningstar has 1,000 shares outstanding, and 300 shares of Intel.