New Business Plan – A Case Part-I Mr. Ahamed discovered an idea to start a new business venture in Oman after completion of his Business Graduation from Yale University. He wishes to study the entire economy of Oman for implementing his project in time and with proper execution. He collected data and found the following information i.e., the major earning of Oman economy is from Exports such as Crude oil and refinery, Natural Gas, Fishing, Minerals, Metals, Cement, Agriculture and Textiles etc., and domestic businesses like Fishing, Agriculture, Tourism, Real estate, Restaurant and Meat selling. As per 2018 censes the total population including other nationalities of the country is 4,829,473 million, the GDP of $ 203.959 Billion with Growth rate of 1.8% and Per- capita income is $18,970. Further he also found the up-coming projects like Fishing, Blue City, Oman Rail, Oman Khazzan Gas Project, Mina Al Sultan Qaboos Waterfront, and Modern Restaurant. Based on the above information, Mr. Ahamed wants to select the good business sector in Oman. Mr. Ahamed wishes to invest 30,000/- OMR, to develop the business venture in Oman. Mr. Ahamed decided to study the market scenario, demand and supply analysis in Oman. Based on the market demand and supply he will continue to do the business. One thing he will understand based on the information only Mr. Ahamed will start the excellent business. Assume as you Mr. Ahamed, how will give the answer for the below questions.

1. Based on the data given which type of business should Mr Ahmed invest his money in? What are the reasons behind it? Explain.

2. Discuss the opportunity cost of choosing the business. Explain.(3+2=5 Marks)

3. Based on the case identify the various Central problems of economy which could be experienced while doing a business. Explain. (3+2=5 Marks)

4. Elaborately discuss the Social Cost of the Business which Mr. Ahmed has chosen to invest in? Explain.

5. Business Mr. Ahamed has chosen to invest in belongs to which type of market structure and explains the salient features of market. (2+3=5 Marks)

6. Explain the demand and supply of his product in the market. Explain.
(2+3=5 Marks)

New Business Plan – A Case

Part-I
Mr. Ahamed discovered an idea to start a new business venture in Oman after completion of his Business Graduation from Yale University. He wishes to study the entire economy of Oman for implementing his project in time and with proper execution. He collected data and found the following information i.e., the major earning of Oman economy is from Exports such as Crude oil and refinery, Natural Gas, Fishing, Minerals, Metals, Cement, Agriculture and Textiles etc., and domestic businesses like Fishing, Agriculture, Tourism, Real estate, Restaurant and Meat selling. As per 2018 censes the total population including other nationalities of the country is 4,829,473 million, the GDP of $ 203.959 Billion with Growth rate of 1.8% and Per- capita income is $18,970. Further he also found the up-coming projects like Fishing, Blue City, Oman Rail, Oman Khazzan Gas Project, Mina Al Sultan Qaboos Waterfront, and Modern Restaurant. Based on the above information, Mr. Ahamed wants to select the good business sector in Oman. Mr. Ahamed wishes to invest 30,000/- OMR, to develop the business venture in Oman. Mr. Ahamed decided to study the market scenario, demand and supply analysis in Oman. Based on the market demand and supply he will continue to do the business. One thing he will understand based on the information only Mr. Ahamed will start the excellent business.
Assume as you Mr. Ahamed, how will give the answer for the below questions.

1. Business Mr. Ahamed has chosen to invest in belongs to which type of market structure and explains the salient features of market. (2+3=5 Marks)

2. Explain the demand and supply of his product in the market. Explain.(2+3=5 Marks)

3. How the business is suitable for the Law of Demand in relation to the product being supplied in market? Explain. (3+2 =5 Marks)

4. What are the various Cost involved in the Business? Explain with proper examples? Explain in details. (3+2=5 Marks)

5. Discuss the revenues part of his business, how he will fix the pricing. Explain.

6. Based on the product nature, briefly explain the elasticity of demand for the product. Explain.

4. New York Apartments. The market supply and demand functions for apartment rentals in New York are given as follows: P=2500-Q and P=300+Q where P is the monthly rent in $ and Q is the number of apartments rented per month.

1. 1. Which is demand, which is supply? Explain.
2. 2. What is the equilibrium market price and quantity?
3. 3. Measure of the benefits consumers and producers receive given the equilibrium and show graphically.

The government is considering placing a price ceiling on monthly rent which limits the amount that landlords can charge in order to attract more people to the city. If they do proceed with this, the price would be set at $1000.

1. 4. What is the outcome of this price ceiling (excess demand/shortage or excess supply/surplus and in what amount)? Show your results graphically.
2. 5. Do consumers benefit from the price ceiling? Do producers? What is the loss in overall economic efficiency?

Assume that because of the price ceiling, quantity supplied falls and quantity demanded rises, resulting in long lines and waiting lists.

1. 6. Knowing this who is more likely to stand in line: lawyers or underemployed retail workers? Why? (Use economic terms.)
2. 7. Markets abhor a disequilibrium. Over time, the market will fully adjust to the price ceiling. What will happen to market demand?
3. 8. What is the new equilibrium price and quantity?
4. 1. What is the total economic cost of obtaining an apartment with a price ceiling? Graph it and provide numerical value.

The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.17 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell 20,500 tents per year at a price of $58 and variable costs of $19 per tent. The fixed costs will be $335,000 per year. The project will require an initial investment in net working capital of $169,000 that will be recovered at the end of the project. The required rate of return is 10.1 percent and the tax rate is 35 percent. What is the NPV?

$824,744

$380,043

$501,537

$578,641

$427,415

The Bruin's Den Outdoor Gear is considering a new 7-year project to produce a new tent line. The equipment necessary would cost $1.99 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 31,000 tents per year at a price of $79 and variable costs of $38 per tent. The fixed costs will be $545,000 per year. The project will require an initial investment in net working capital of $253,000 that will be recovered at the end of the project. The required rate of return is 12.2 percent and the tax rate is 35 percent. What is the NPV?

Investment Outlay

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $12 million, and production and sales will require an initial $2 million investment in net operating working capital. The company's tax rate is 35%.

1. What is the initial investment outlay? Enter your answer as a positive value. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar.

   $  

2. The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer?

   -Select-YesNoItem 2 , last year's $150,000 expenditure -Select-isis notItem 3 considered a sunk cost and -Select-doesdoes notItem 4 represent an incremental cash flow.

3. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer?

   The project's cost will -Select-increasedecreasenot changeItem 5 .

Suppose the state of new york implemented a new policy giving free college tuition to all students who scored above 1400 on the SAT. NYS has asked you to use the results of this program to measure the effect of a college education on earnings.

1.In general, why is it econometrically challenging to measure the returns to schooling?

2.What method could you use to answer this question? In a few sentences,what is the basic intuition for how the method works?

NEW PROJECT ANALYSIS

You must evaluate a proposal to buy a new milling machine. The base price is $186,000, and shipping and installation costs would add another $18,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,100. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $7,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $40,000 per year. The marginal tax rate is 35%, and the WACC is 11%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

1. How should the $5,000 spent last year be handled?
   1. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
   2. Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   3. Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   4. The cost of research is an incremental cash flow and should be included in the analysis.
   5. Only the tax effect of the research expenses should be included in the analysis.
   
   -Select-IIIIIIIVVItem 1

2. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.
   $

3. What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations.

   Year 1 $

   Year 2 $

   Year 3 $

4. Should the machine be purchased?
   -Select-YesNoItem 6

Both Government and Opposition in New Zealand acknowledge that New Zealand needs to reduce its greenhouse gas emissions. To guide purchasing decisions of New Zealanders, government proposed to subsidise the price of imported electric and hybrid vehicles by up to NZ$8,000 and tax the import of vehicles with the highest greenhouse gas emission by up to NZ$3,000.[1]

Julie-Anne Genter says, “These policies are about making cleaner vehicles a realistic option for more New Zealand households and businesses.”[2]

Lawrence Yule responds “National supports incentivising people to buy electric vehicles, providing their lifestyle can accommodate them. From the surface this looks like a concept that is worth exploring, I have found however after investigation that it is unlikely to work.”[3]

The Ministry of Transport notes that, “New Zealand is well placed to benefit from electric vehicles. More than 80 percent of electricity is generated from renewable sources and there is enough supply for widespread adoption of EVs. Even if every light vehicle was electric, there is sufficient generation capacity to charge these provided the majority are charged at off-peak times.”[4]

Given what you understand about price elasticity of demand and supply, explain why electric vehicle prices continue to be so high in New Zealand. Use a suitable diagram to illustrate your answer.

Given what you understand about price elasticity of demand and supply, explain how the proposed "feebate" policy will affect consumer purchasing decisions of electric vehicles and vehicles with high greenhouse gas emissions ("gas guzzlers"). Use a suitable diagram to illustrate your answer.

Either using the same diagram, or a new one, explain the impact of the feebate policy on price in the two market segments. Explain how the benefit of the subsidy and the burden of the tax is likely to be shared between the consumers and vehicle importers. What impact would you expect the feebate policy to have on the price and quantity demanded of electric vehicles and gas guzzlers? What are the advantages to society of lowering the price of electric vehicles and increasing that of gas guzzlers? What are the disadvantages?

Based on your discussion, do you think the government’s intervening in the market of imported vehicles will be beneficial for society?