Use the following information for the next two questions. You are creating a cash flow project for your new venture, CBD IPA, a cannabis-infused beer and have made the following assumptions for the business:

• First year sales of 10,000 cans, rising by 10% each year
• Price per unit of $4.00 each, rising by 2% per year
• Operating expense equals first year sales revenue and rises 10% per year

1. What is the projected sales revenue of CBD IPA in year 3 (6 points)?

1. What is the operating income of CBD IPA in Year 4 (6 points)?

1. Define the profitability index and explain how it may be used a criterion for determining whether to pursue an investment or project (8 points).

In a homogeneous product duopoly, each firm has constant marginal cost equal to 10. The market inverse demand curve is p = 250 – 2Q where Q = q1 + q2 is the sum of the outputs of firms 1 and 2, and p is the price of the good. Marginal and average cost for each firm is 10. Word limit per question: 400 words (200 words per part of question)

(a) What are the Cournot and Bertrand equilibrium quantities and prices in this market? In a two period version of the model in which each firm can observe the other’s behaviour in the first period, will the firms collude?

(b) Find the outcome for the Stackelberg model, assuming firm 1 is the “leader” (i.e., moves first) and firm 2 is the “follower” (i.e., moves second).

Suppose a simple economy produces only two goods, pillows and rugs. In the first year, 50 pillows are produced, and sold at $5 each; 11 rugs are produced, and sold at $50 each. In the second year, 54 pillows are produced, and sold for $6 each; 12 rugs are produced, and sold at $52 each. In the third year, 60 pillows are produced and sell for $7.00 dollars each; 14 rugs are produced and sold for 64 dollars each. Calculate real GDP for each year and the growth rate of real GDP from year 1 to year 2 and from year 2 to year 3. Next, construct a constant weight price index for the three years. Use the first year as the base year for both calculations.

There are three forms of payment to buy a car. The first is to buy the car in cash at a price of $ 120,000. The second is to pay 60 equal monthly payments of $ 3,164.47 each month, the first one a month after purchase. The third way to acquire the car is by paying 48 equal monthly payments of $ 1,955.00 each, starting to pay a month after making the purchase, and also paying four equal annuities of $ 21, 877.83 at the end of the months 12, 24, 36 and 48. With an annual interest of 24% capitalized monthly, it determines the best form of payment from the economic point of view. a) Perform the corresponding calculations of the three options that allow you to compare total cost. b) Discuss which of the three options is best for the buyer and why.

Winner Ltd. is authorized to issue $ 2 comma 000 comma 000 of 3​%, 10​-year bonds payable. On December​ 31, 2018​, when the market interest rate is 5​%, the company issues $ 1 comma 600 comma 000 of the bonds. Winner amortizes bond discount using the​ effective-interest method. The semiannual interest dates are June 30 and December 31.

1.Use the PV function in Excel Superscript ® to calculate the issue price of the bonds.

2.Prepare a bond amortization table for the first year of the bonds.

3.Record the issuance of the bonds payable on December​ 31, 2018​; the first semiannual interest payment on June​ 30, 2019​; and the second payment on December​ 31, 2019.

The price of a car you are interested in buying is $93.65k. You negotiate a 6-year loan, with no money down and no monthly payments during the first year. After the first year, you will pay $1.26k per month for the following 5 years, with a balloon payment at the end to cover the remaining principal on the loan. The annual percentage rate (APR) on the loan with monthly compounding is 5%. What will be the amount of the balloon payment 6 years from now?

Note: The term “k” is used to represent thousands (× $1,000).

Required: Suppose the loan has initially been paid in full (without a balance due at maturity), the amount would have totaled $37k. Calculate the absolute percentage difference between the fully amortized loan and the balloon payment.

A city water department is considering replacing its main pump. This pump can be kept in service for an additional two years, or it can be sold for $32,000 and replaced by a new pump. The market value of the current pump will become $28000 and $20000 at the end of the first, and second years, respectively. The operating expenses of the pump are $16,000 during the first year, and $20,000 during the second year. The purchase price of the replacement pump is $50,000, and it has an estimated economic life of 5 years, and a $8,000 market value at that time, and a fixed annual operating cost of $15,000. Assuming the MARR is 10%:

a) Determine the economic service life of the current pump. b) Using the Annual Equivalent Cost (AEC) of the new pump, determine when the

current pump should be replaced

The price of a car you are interested in buying is $93.45k. You negotiate a 6-year loan, with no money down and no monthly payments during the first year. After the first year, you will pay $1.23k per month for the following 5 years, with a balloon payment at the end to cover the remaining principal on the loan. The annual percentage rate (APR) on the loan with monthly compounding is 5%. What will be the amount of the balloon payment 6 years from now?

Note: The term “k” is used to represent thousands (× $1,000).

Required: Suppose the loan has initially been paid in full (without a balance due at maturity), the amount would have totaled $37k. Calculate the absolute percentage difference between the fully amortized loan and the balloon payment.

Neverstop Corporation sells item A as part of its product line. Information about the beginning inventory, purchases, and sales of item A are given in the following table for the first six months of the current year. The company uses a perpetual inventory system:

2. Compute the gross profit for the first six months of the current year by using the FIFO costing method. (Do not round intermediate calculations and round the final answer to 2 decimal places.)