Demand and Supply
Graph each question separately. Make sure to start with equilibrium and then shift the supply or demand curve to answer the question.

1. Using the information bellow, Draw the Demand and supply Curves for Candy Bars to find the initial equilibrium price and quantity.                                               

                                                                        Demand

                                           P                           Q                          Pt.

                                           $1.25                   1                           A

                                           $100                    2                           B

                                           $0.75                   3                           C

                                           $0.50                   4                           D

                                           $0.25                   5                           E

                                                          Supply

P                                                                      Q                          Pt.

$1.25                                                8                           A

$1.00                                                7                           B

$0.75                                                5                           C

$0.50                                                3                           D

$0.25                                                1                           E

Now show what happens to the equilibrium price and quantity as an independent graph for each of the following events. (Make sure to include both the supply and demand curves and draw a separate graph for each question below):

2) candy stops heart disease

3) the price of chocolate increases

4) Tech. advances in how candy is made

5) we tax candy.

Make sure you do a separate graph for each event/question starting with the initial equilibrium and then showing the shift in either the supply and demand curve. Then make sure that you show the new equilibrium price and quantity.

A ten-year Treasury note with a 5.000% coupon rate is sold at par value in the primary market (assume par value is $100). Bill purchases the Treasury note at a price of 103.000 when it has five years left to maturity and it has a 4.326% yield-to-maturity. Bill holds the Treasury note for three years and then sells it to George in the secondary market. George then holds the Treasury note to maturity. Assume three years from when Bill purchases the Treasury note, yield-to-maturities (interest rates) will be:

• 3.800% on T-notes with 1-year to maturity
• 4.000% on T-notes with 2-years to maturity
• 4.200% on T-notes with 3-years to maturity
• 4.400% on T-notes with 4-years to maturity
• 4.600% on T-notes with 5-years to maturity
• 5.2000% on T-notes with 10-years to maturity

1. Complete a time line for George’s Treasury note (while owned by George). You should include as much information as possible. You can let price be an unknown variable (i.e., Price = ? or PV = ?) as it will be calculated below.

0                           1     

|----------------------|-----------------      

2.         Enter the variables into the financial calculator box needed to solve for George’s purchase price.

Four firms (A, B, C, and D) play a simultaneous-move pricing game. Each firm (i) may choose any price Pi ∈ [0, ∞) with the goal of maximizing its own profit. (Firms do not care directly about their own quantity or others’ profits.) Firms A and B have MC = 10, while firms C and D have MC = 20. The firms serve a market with the demand curve Q = 100 – P. All firms produce exactly the same product, so consumers purchase only from the firm with the lowest price. If multiple firms have the same low price, consumers divide their prices evenly among the low-priced firms.

a. There are many equilibria in this simultaneous-move pricing game. Provide one equilibrium combination of prices, and argue that no firm has a unilateral incentive to deviate from these prices.

b. Provide a second equilibrium that is distinct from the combination of prices you provided in part (a). As in (a), argue for the absence of a unilateral incentive to deviate from these prices. (For a set of actions to be distinct, one or more prices must be different from the price combination in part a. It is not necessary to have all four prices be different.)

The McNabb Company’s Eastern Division has capacity to produce 200,000

widgets annually. The normal selling price is $19 per widget. Fixed costs are $800,000,

and variable costs are $7 per widget. Another division of McNabb Company would like

to buy some widgets from the Eastern Division.

Required:

A) Assume the Eastern Division is operating at 100% of capacity (demand from

current customers exceeds the Eastern Division's production capacity). The

Western Division would like to purchase 10,000 widgets from the Eastern

Division, and $2 of the variable costs incurred by the Eastern Division could be

avoided on each widget transferred. What is the lowest transfer price the Eastern

Division should accept?

B) Assume that the Eastern Division is operating at 80% of capacity. The Western

Division would like to purchase 20,000 widgets. No variable cost would be

avoided on the sale. What is the lowest transfer price the Eastern Division should

accept?

C) Assume the Eastern Division is operating at 95% of capacity. The Western

Division would like to buy 40,000 widgets in an all-or-nothing deal (it is 40,000

or zero). There would be no variable cost savings. What is the lowest transfer

price the Eastern Division could accept to maintain its current profitability?

16. Consider the following information about the CMX gold futures contract:

    (a) Contract size: 100 troy ounce
    Initial margin: $1,013 per contract
    Maintenance margin: $750 per contract
    Minimum tick size: 10 cents/troy ounce ($10/contract)

    There are four traders, A, B, C, and D in the market when next yearís June contract commences trading. (Kolb Ch3)

(a) Complete the following table showing the open interest for the contract.

(b) Calculate the gains and losses for Trader A. Assume that at the time of each change in position, Trader A must bring the margin back to the initial margin account. Compute the amount in Trader Aís margin account at the end of each trading day. Will Trader A get a margin call? If so, when and how much additional margin must be posted?

(TCO E) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 15%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.

FIFO Perpetual Inventory

The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

Required:

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. 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.

2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.

3. Determine the gross profit from sales for the period.
$

4. Determine the ending inventory cost as of June 30.
$

5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?