15. A typical firm in a monopolistically competitive industry faces the following demand and total cost equations for its product Q= 20- 1/3 P TC= 100-5Q+ Q2 a. What is the firm’s short-run profit-maximizing price and output level? b. What is the firm’s economic profit? c. Suppose that the existence of economic profit attracts new firms into the industry such that the new demand curve facing the typical firm in this industry is Q=35/3 - P/3. Assuming no change in the firm’s total cost function, find the new profit-maximizing price and output level. d. Is the firm earning an economic profit? e. What, if anything, can you say about the relationship between the firm’s demand and average cost curves? Is this result consistent with your answer to part c?

You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation.   

(ii) Profitability Index (PI)                                                                                  (1 mark)

(iii) Payback period (in years)                                                                            (1 mark)

(iv) Discounted payback period (in years)                                                          (1 mark)

(v) Internal Rate of Return (IRR in %)                                                              (1 mark)

(vi) Average Accounting Return (AAR in %)                                                  

      Hint: Net Income = {[(Price – variable cost)*Quantity Sold] – Fixed Costs – Depreciation} * (1 – Tax rate)

Question 1

Wonderland Corp. will pay a dividend of $3.5 next year. The company plans tomaintain a constant growth rate of 5 percent a year forever. Investors’ required rate ofreturn is 12 percent.

Robinson Corp. will pay the following dividends over the next four years: $20, $18, $15 and $3. Afterwards the company pledges to maintain a constant 5 percent growthrate in dividends, forever. Investors’ required rate of return is 12 percent.

Required:

1. (a) How much will you pay for these two stocks?

2. (b) If both companies change its policy to maintain a constant growth rate of 4 percent, what is the percentage change of these two stocks?

3. (c) What does this tell you about the relationship and stock price sensitivity between the dividend growth and the stock price of these two stocks? [within 100 words]

Wonderland Corp. will pay a dividend of $3.5 next year. The company plans to maintain a constant growth rate of 5 percent a year forever. Investors’ required rate of return is 12 percent.
Robinson Corp. will pay the following dividends over the next four years: $20, $18, $15 and $3. Afterwards the company pledges to maintain a constant 5 percent growth rate in dividends, forever. Investors’ required rate of return is 12 percent.

Required:
(a) How much will you pay for these two stocks?

(b) If both companies change its policy to maintain a constant growth rate of 4 percent, what is the percentage change of these two stocks?

(c) What does this tell you about the relationship and stock price sensitivity between the dividend growth and the stock price of these two stocks? [within 100 words]

Information from the financial statements of Topps Fambricators, Inc., Included the following :

Common shares 100,000

Convertible preferred shares $100 par, 5% (convertible into 36,000 shares of common) 12,000

10% convertible bonds (convertible into 25,000 shares of common) $1,000,000

Stock options for 120,000 shares of common stock (option price of $20 per share; market price of $25 per share)

Topps's net income for the year ended December 31,2018, is $680,000. The income tax rate is 40%.

Topps paid dividends of $5 per share on its preferred stock during 2018.

Compute basic and diluted earnings per share for the year ended December 31, 2018.

(Basic earnings per share is $6.20 and diluted earnings per share is $4.00. Could you please explain me why diluted EPS is $4.00). Thank you

Selling price is $10/tin. The cost is $8/tin This includes $6 of direct material and $1.50 of direct labor. Direct labor is 1 hour per 100 tins. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. The breakdown for manufacturing overhead includes 85% of variable costs.

d. The Controllable Variance is $3250 Unfavorable. What was the total dollar amount for actual manufacturing overhead?

e. Explain the calculation of the total standard hours allowed for actual production.

f. The Labor Quantity Variance is $300 Unfavorable. How many total actual hours were worked?

g. What is the total standard cost of direct materials for total actual production?

h. Total Material Price Variance is $16,800 Unfavorable. What was the actual direct material cost for total actual production?

Suppose we see the following prices for zero coupon bonds with maturities ranging from one to six years:

a) What do you expect the five-year spot rate to be one year from now? Please report the annual rate.

b) What is the yield-to-maturity of a six-year coupon bond that has a face value of $1,000 and an annual coupon rate of 8%? The coupons are paid annually.

c) What is the (Macaulay’s) duration of the bond introduced in part (b)? What’s the economic meaning of duration? How can you interpret its weights?

d) How much would the price of the bond change if the yield increased by 1%?

Chapter 10 Pure Monopoly Assignment

1. What are the major characteristics of pure monopoly?

2. In the following table are demand and cost data for a pure monopolist. Complete the table by filling in the columns for total revenue, marginal revenue, and marginal cost.

Answer these three questions:

1. What output will the monopolist produce?

(b) What price will the monopolist charge?

(c) What total profit will the monopolist receive at the profit-maximizing level of output?