Bombardier, after spending $250,000 on a feasibility study, has determined that its customers will be willing to pay more money for the C Series model if Bombardier invests in a manufacturing technology upgrade that can enhance the safety of the engine. Bombardier realizes that the delays in the C Series program are likely costing them potential sales of the C Series jets. The feasibility study allowed management to better understand the implementation costs of the new technology as well as the potential payoff. Thus, they see the opportunity to make a short-term investment in the engine technology that will affect the next eight years of production in order to improve their overall offering to their customers.

Because the C Series production facilities are already covered in original cost estimates, no additional costs for production facilities are required. However, the required new machinery will cost $2,100,000 and will be subject to capital cost allowance depreciation (Asset Class 8, 20% CCA Rate). When the C Series program expires after year eight, Bombardier executives figure there will be $396,361.73 in salvage on the equipment. Sales across the eight years of the C Series program are projected to be 19 units, 23 units, 30 units, 44 units, 55 units, 35 units, 37 units, and 40 units.

Bombardier expects that the price to their customers will start at an additional $125,000 with 3.5 per cent increases per year, as they wish to keep their prices competitive. Material costs of production are expected to be $67,500 per unit, growing at four per cent a year. Fixed costs per annum will amount to $670,000. The corporate tax rate Bombardier is subject to is 26.4 per cent.

Finally, Bombardier requires a maintained investment in working capital of $365,000 at the beginning of the project. This will stay at 14 per cent of sales at the end of each year, and reduces to 0 by the project's end; therefore, the investment in working capital is fully recovered by the project's end. As the company will be purchasing raw materials prior to production and sales delivery, they must create an investment in inventory as well as

maintaining some cash as a buffer against unforeseen expenses. If the firm has negative taxable income from the project in a given year, please assume that the firm has positive income from other projects, so that the loss can be written off (as a tax benefit) against this other project income in the same year.

Questions

1. What is the Internal Rate of Return on the project?

2. What is the Net Present Value of the project if the required rate of return (Weighted

   Average Cost of Capital) is equal to 3.90 per cent?

3. By how much would the Net Present Value of the project change if unit sales were 25

   per cent less than expected (round down toward zero the number of units; the WACC is still 3.90%)?

Bombardier, after spending $250,000 on a feasibility study, has determined that its customers will be willing to pay more money for the C Series model if Bombardier invests in a manufacturing technology upgrade that can enhance the safety of the engine. Bombardier realizes that the delays in the C Series program are likely costing them potential sales of the C Series jets. The feasibility study allowed management to better understand the implementation costs of the new technology as well as the potential payoff. Thus, they see the opportunity to make a short-term investment in the engine technology that will affect the next eight years of production in order to improve their overall offering to their customers. Because the C Series production facilities are already covered in original cost estimates, no additional costs for production facilities are required. However, the required new machinery will cost $2,100,000 and will be subject to capital cost allowance depreciation (Asset Class 8, 20% CCA Rate). When the C Series program expires after year eight, Bombardier executives figure there will be $396,361.73 in salvage on the equipment. Sales across the eight years of the C Series program are projected to be 19 units, 23 units, 30 units, 44 units, 55 units, 35 units, 37 units, and 40 units. Bombardier expects that the price to their customers will start at an additional $125,000 with 3.5 per cent increases per year, as they wish to keep their prices competitive. Material costs of production are expected to be $67,500 per unit, growing at four per cent a year. Fixed costs per annum will amount to $670,000. The corporate tax rate Bombardier is subject to is 26.4 per cent. Finally, Bombardier requires a maintained investment in working capital of $365,000 at the beginning of the project. This will stay at 14 per cent of sales at the end of each year, and reduces to 0 by the project's end; therefore, the investment in working capital is fully recovered by the project's end. As the company will be purchasing raw materials prior to production and sales delivery, they must create an investment in inventory as well as maintaining some cash as a buffer against unforeseen expenses. If the firm has negative taxable income from the project in a given year, please assume that the firm has positive income from other projects, so that the loss can be written off (as a tax benefit) against this other project income in the same year.

1. What is the Internal Rate of Return on the project?

2. What is the Net Present Value of the project if the required rate of return (Weighted Average Cost of Capital) is equal to 3.90 per cent?

3. By how much would the Net Present Value of the project change if unit sales were 25 per cent less than expected (round down toward zero the number of units; the WACC is still 3.90%)?

Mr. Bestall, CFO of the Best Finance Inc., was satisfied with its income statement report. He decided to have a meeting with the analysts following the Best Finance Inc. before filing its financial statements with the SEC. The following conversation was in the meeting. CFO: The year ended on September 30 should be our most profitable in history and as a consequence, the board of directors has just awarded the officers generous bonuses. Analysts: I thought profits were down this year in the industry, mainly because of the pandemic COVID 19. Your latest interim report showed losses too. CFO: Well, they were down, but ten days before closing the accounting period we closed a deal that will give us a substantial increase for the year. Analysts: Oh, what was it? CFO: Well, you remember a few years ago our former president bought stock in Jubilee Enterprises because he had an inorganic growth plan. For six years, we have not been able to sell this stock, which cost us $3,000,000 and has not paid any dividends at all. We sold this stock to Rich & Rich Inc. for $4,000,000. So we had a gain of $700,000 ($1,000,000 before tax) which increased our net income for the year to $4,000,000. Last year's net income was $3,700,000. As far as I know, we will be the only company in the industry to register an increase in net income this year. That should help the market value of the stock! Analysts: When do you expect to receive the $4,000,000 in cash? CFO: They give us a $4,000,000 zero-interest bearing note with payments of $400,000 per year for the next ten years. The first payment is due on September 30 next year. Rich & Rich Inc. is an excellent company. They are a little tight for cash because of their rapid growth. Analysts: Why is the note zero-interest bearing? CFO: Because that's what everybody agreed to. Since we don't have any interest-bearing debt, the funds invested in the note do not cost us anything and besides, we were not getting any dividends on the Jubilee Enterprises stock.

Do you agree with the way the CFO has accounted for the transaction?

Explain your reasoning.

The table below shows three different technologies used to produce various levels of output.

(a)        In general, which technology is the most desirable?

(b)       Which technology will be chosen if the firm wishes to produce 1 unit of output, the price of capital is $4 per unit, and the price of labor is $2 per unit?

(c)        Will this still be cheapest if the input prices change to $3 and $3, respectively?

(d)       Will this still be cheapest if the input prices change to $2 and $4, respectively?

(e)        For each of the three sets of prices in (b), (c), and (d) above, establish which technology is the cheapest for each output level.

One of the most​ impressive, innovative advances in online fundraising over the past decade is the rise of​ crowd-funding websites. While features differ from site to​ site, crowd-funding sites are websites that allow you to set up an online fundraising campaign based around a fundraising​ page, and accept money directly from that page using the​ website's own credit card processor. A certain​ crowd-funding website reported that 127 of 347 technology​ crowd-funding projects were successfully launched in the past year and 347 of 882 film and video​ crowd-funding projects were successfully launched in the past year. Complete parts​ (a) through​ (c) below.
a. Is there evidence of a significant difference in the proportion of technology​ crowd-funding projects and film and video​ crowd-funding projects that were​ successful? (Use alpha ​= 0.1​.)
State the null and alternative​ hypotheses, where pi 1 is the population proportion of successful technology​ crowd-funding projects and pi 2 is the population proportion of successful film and video​ crowd-funding projects.

One of the most​ impressive, innovative advances in online fundraising over the past decade is the rise of​ crowd-funding websites. While features differ from site to​ site, crowd-funding sites are websites that allow you to set up an online fundraising campaign based around a fundraising​ page, and accept money directly from that page using the​ website's own credit card processor. A certain​ crowd-funding website reported that 127 of 347 technology​ crowd-funding projects were successfully launched in the past year and 347 of 882 film and video​ crowd-funding projects were successfully launched in the past year. Complete parts​ (a) through​ (c) below.
a. Is there evidence of a significant difference in the proportion of technology​ crowd-funding projects and film and video​ crowd-funding projects that were​ successful? (Use alpha ​= 0.1​.)
State the null and alternative​ hypotheses, where pi 1 is the population proportion of successful technology​ crowd-funding projects and pi 2 is the population proportion of successful film and video​ crowd-funding projects.

The data in TECHPRO.sav, obtained from Business Week’s (June 22, 2006) technology section, represents typical salaries of technology professionals in 13 metropolitan areas for 2003 and 2005. Suppose you want to determine if the mean salary of technology professionals at all US. Metropolitan areas have increased between 2003 and 2005.

(a) Set up the null and alternative hypothesis for the test.   

(f) Conduct the appropriate test and provide your conclusion. More specifically, I want you to examine   whether the null hypothesis should be rejected by analyzing the data with SPSS. alpha=0.05

DATA SET:

The data in TECHPRO.sav, obtained from Business Week’s (June 22, 2006) technology section, represents typical salaries of technology professionals in 13 metropolitan areas for 2003 and 2005. Suppose you want to determine if the mean salary of technology professionals at all US. Metropolitan areas have increased between 2003 and 2005.

(a) Set up the null and alternative hypothesis for the test.   

(f) Conduct the appropriate test and provide your conclusion. More specifically, I want you to examine   whether the null hypothesis should be rejected by analyzing the data with SPSS. alpha=0.05

DATA SET:

Perfect competition requires that first are always competing to improve technology, lower costs, and strive for profits. That means that old technology, and markets, get destroyed. Watch this video creative destruction. https://youtu.be/8N08Kkjq9gA

Identify a product that has been fundamentally changed due to creative destruction (not one mentioned in the video). Explain how the negative impacts are often more visible than the positive impacts.   

Example:

VHS tapes, and VHS rental stores such as BlockBuster Video have been replaced with Redbox and streaming services. The visible impact is that many who were employed in renting videos are displaced. Further, those who produced physical VHS tapes and those who transported them to the stores saw a decline in demand for their services.

However, from a societal perspective, we're now able to watch our videos and use the labor that was previously used in the VHS market to produce something else valuable for society. The result of this is more output for society.

There are winners and losers as technology advances. While society wins, those who are displaced are clearly hurt.

There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298 have a cost structure that generates profits of $18 for every $300 invested.  

A. What is the percentage rate of return for these 298 dairies?

B. The other two dairies have a cost structure that generates profits of $26 for every $200 invested. What is their percentage rate of return?

C. Assuming that the normal rate of profit in the economy is 10 percent, and firms cannot copy each other's technology, will there be entry or exit?

D. Will the change in the number of firms affect the two that earn $26 for every $200 invested?

• Yes, because those exiting firms will spread the technology.

• No, because the exiting firms didn't belong in the industry.

• No, because these firms are too small.

• Yes, because those two can claim a larger market share.

E. What will be the rate of return earned by most firms in the industry in long-run equilibrium?

F. If firms can copy each other’s technology, what will be the rate of return eventually earned by all firms?