Storm, Inc. purchased the following available-for-sale securities during Year 1, its first year of operations:

The market price per share for the available-for-sale security portfolio on December 31, Year 1, was as follows:

Required:

Suppose there are two firms, Firm A and Firm B that produce identical products in a duopoly. Firm A has a constant marginal cost of production, MC_A = 10 and Firm B has a constant marginal cost, MC_B = 14. The market demand curve for the the product is given by P = 42 − 0.004Q where Q = (Q_A + Q_B).

(a) Suppose that Firm A has a first-mover advantage. That is, Firm A is able to choose output before Firm B.

(i) Calculate the equilibrium quantities. Show your work.

(ii) Calculate the price resulting from the equilibrium quantities.

(b) Now suppose that the two firms compete by simultaneously choosing how much output to

produce.

(i) Calculate the Cournot Nash Equilibrium quantities. Show your work and the steps you are following along the way.

(ii) Calculate the price resulting from the Nash equilibrium quantities.

The A Company and the B Company are the only two firms that produce and sell a particular product. The inverse demand curve for their product is:

P=19-0.5Q

where Q=Q_A+Q_B

The companies have identical cost functions:

TC_A=3+Q_A

TC_B=3+Q_B

a) Suppose that the two companies are owned by Cournot duopolists. Find the output produced by each firm and the market price. Very briefly explain the steps you take in your solution.

b)Instead of the Cournot assumption, assume Company A sets its output before Company B does. Find the output levels of each firm and the market price. Hint: this is the Stackelberg solution. Very briefly explain the steps you take in your solution.

c) How big is the first-mover advantage for Company A in part b) in terms of profits? Very briefly explain and show your work.

A computer company produces affordable, easy-to-use home computer systems and has fixed costs of $250. The marginal cost of producing computers is $700 for the first computer, $250 for the second, $300 for the third, $350 for the fourth, $400 for the fifth, $450 for the sixth, and $500 for the seventh. Create a table that shows the company’s output, total cost, marginal cost, average cost, variable cost, and average variable cost. At what price is the zero-profit point? At what price is the shutdown point? If the company sells the computers for $500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss. If the firm sells the computers for $300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

Creative Computing sells a tablet computer called the Protab. The $740 sales price of a Protab Package includes the following:

• One Protab computer.
• A 6-month limited warranty. This warranty guarantees that Creative will cover any costs that arise due to repairs or replacements associated with defective products for up to six months.
• A coupon to purchase a Creative Probook e-book reader for $400, a price that represents a 50% discount from the regular Probook price of $800. It is expected that 20% of the discount coupons will be utilized.
• A coupon to purchase a one-year extended warranty for $65. Customers can buy the extended warranty for $65 at other times as well. Creative estimates that 40% of customers will purchase an extended warranty.
• Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an extended warranty, but estimates that if it did so, a Protab alone would sell for $720.

All Protab sales are made in cash.

Required:
1. & 2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 100,000 Protab Packages to the separate performance obligations in the contract.
3. Prepare a journal entry to record sales of 100,000 Protab Packages (ignore any sales of extended warranties).

Indicated below whether each item is a separate performance obligation and allocate the transaction price of 100,000 Protab Packages to the separate performance obligations in the contract.

Prepare a journal entry to record sales of 100,000 Protab Packages (ignore any sales of extended warranties). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

• Record the sales of 100,000 Protab Packages.

Note: Enter debits before credits.

9.4     You’re considering buying shares of Kirk’s Information Inc. The company is still in a growth phase, so it won’t pay dividends for the next few years.                                             

Kirk’s accountant has determined that their first year’s earnings per share (EPS) is expected to be $20.

The company expects a return on equity (ROE) of 25% in each of the next five years but in year 6 they expect a ROE of 20%. In year 7 and beyond (indefinitely) it expects to earn a ROE of 15%. Assume that the required return on this investment is 15%.

Also, at the end year 6 and every year thereafter, the company expects to pay dividends at a rate of 70% of earnings, retaining the other 30% in the company.

1. Complete the following table (all values per share):              

2. What would the dividend per share be at the end of year 8 (D₈, from your table above)?      (1 mark)
3. Calculate the value of all future dividends for each share at the beginning of year 8. (Hint: P₇ depends on D₈.)   
4. What is the present value of P₇ for a single share at the beginning of year 1 (i.e., now, at time 0)?          (1 mark)
5. Recall that the value of a share is equal to the present value of all future dividends. What is the value of a single share in the company now, at time 0?                                   (1 mark)

Suppose you want to test whether you can solely rely on assessment to predict house price, that is, knowing housing characteristics will not help you predict housing price, once assessment is included in the model. Using a sample of 125 houses, you have estimated

Price= α+ β1 assess+ β2 lotsize+ β3 sqrft+ β4 bdrms+ u

and you decide to do a test at the 5% significance level. Then your best approach to answering the question is to

a) check each of the p-values for β2 ,β3 , and β4 . If none of them is < 0.05, you decide you don’t need the characteristics.

b) check the overall F statistic for the model. If the corresponding p-value is < 0.05, you decide you need the characteristics.

c) Test the joint significance of β2 ,β3 , and β4 .That is, estimate Price= α+ βassess+ u , and calculate an F statistic that is equal to (( Rur− Rr)/3)/((1− Rur)/120) , where Rur is the R2 from the first regression and Rr is the R2 from this second regression. If this F statistic is > 2.68 you decide that you need the characteristics (The 5% critical value in an F distribution with df (3, 120) is 2.68).

d) do the same as in d, but the decision rule is that if the F statistic is > 2.68, don’t need the characteristics.

Use the following information for Exercises 10-45, 10-46, and 10-47:

Cinturon Corporation produces high-quality leather belts. The company's plant in Boise uses a standard costing system and has set the following standards for materials and labor:

leather (3 strips @ $4) $12.000

direct labor (0.75 hr @ $12.00). 9.00

total prime cost $21.00

During the first month of the year, the Boise plant produced 92,000 belts. Actual leather purchased was 287,500 strips at $3.60 per strip. There was no beginning or ending inventories of leather. Actual direct labor was 78,200 hours at $12.50 per hour.

Materials Variances

Objective 3

Refer to the information for Cinturon Corporation above.

Required:

1. Break down the total variance for materials into a price variance and a usage variance using the columnar and formula approaches.

2. Conceptual Connection Suppose the Boise plant manager investigates the materials variances and is told by the purchasing manager that a cheaper source of leather strips had been discovered and that this is the reason for the favorable materials price variance. Quite pleased, the purchasing manager suggests that the materials price standard be updated to reflect this new, less expensive source of leather strips. Should the plant manager update the materials price standard as suggested? Why or why not?

The data is the square footage and selling price of single-family homes for the month of February and the first week of March.

1. Make a scatter plot, including the regression line and its equation.
2. Use an appropriate Excel function to find the correlation coefficient r. Determine the type of linear relationship, if any.
3. Interpret the slope and y-intercept, if appropriate, in the context of the data.
4. Use an appropriate Excel function and the data to find a predicted(average) selling price for a single- family house measuring 1960 square feet. Does the house that measured 1960 square feet in the sample have a selling price that is below or above average, and why?