Demand: Qd=90-4P, where Qd is quantity demanded and P is price

Supply: Qs=-100+15P, where Qs is quantity supplied and P is price

Recall that equilibrium price was 19, while quantity was 50. At that price, the price elasticity of demand was -0.80.

1. Now I want you to rearrange each equation, putting P on the left-hand side, and solve again for equilibrium P and Q (you ought to get the same answer).
   1. Now we want to figure the monopoly price. Take the supply equation that you just developed (with P on the left-hand side), and make it your marginal cost equation. That is, just replace P with MC.

2. Total revenue is (P*Qd) and marginal revenue is the first derivative of total revenue with respect to Qd. Calculate total revenue and marginal revenue equations, derived from the demand equation developed above.

3. Now calculate price and quantity at the monopoly equilibrium (set MR=MC, solve for Q, the solve for P from the demand equation). How does monopoly P and Q compare to that calculated under competition?

4. What’s the price elasticity of demand at the monopoly price and quantity? Is it more or less elastic than the price elasticity at the competitive equilibrium?

1. A price elasticity of demand, estimated at the profit-maximizing monopoly price, will always be in the elastic range (that is, less than -1.0). Can you explain why?

Bank Balance Sheet (Note: Use this information for all three problems)

Item                             Amount            Duration       Interest Rate       

Cash-type Securities       $50m                1.2 year             2.25%

Commercial Loans          $100m             2.4 years           4.50%

Mortgages                     $350m             8.0 years           6.50%

Core Deposits                $270m             1.0 year             2.00%

Notes Payable                $180m             2.0 years           4.50%

1. Deposit Outflow Analysis (6 points)

a. Calculate the bank’s assets (A), liabilities (L) and its current value, or equity (E).

b. Calculate the bank’s Net Income (Interest Income – Interest Expense) for the current year (ignore taxes here and below, and ignore any maturity values), and the bank’s ROA% and ROE%. (Return on Assets = Net Income / Assets).

Assume an unexpected $70m outflow of core deposits. The bank considers 2 options:

Option A: Issue $70m of new subordinated debt for 5.50%.

Option B: Sell $70m of its mortgage portfolio at full book value.

c. Under Option A, calculate the bank’s Net Interest Income, ROA (express as a percent), and ROE (express as a percent).

d. Under Option B, calculate the bank’s Net Interest Income, ROA and ROE (express ROA and ROE as a percent).

e. If maximizing ROA is the bank’s goal, which option should it use (report and compare the ROAs)? What if ROE is the goal (report and compare the two ROEs)?

Suppose you have a call option on a stock with a strike price of $2 2. A) Fill in the stock price and strike price in the table and calculate the exercise value ( B) Plot the Stock price on the x-axis and the Exercise value on the y-axis. Be sure to label both axes with titles and include a chart title. Now assume you have the following data for a call option: Current stock price Strike price Time to expiration Risk - free rate Stock return standard deviation $65.00 $70.00 1.0 4 . 0 % 35 .00% C) Fill in the components of the Black -Scholes model and calculate d 1 and d 2 D) Calculate the value of N(d 1 ) and N(d 2 ) using the Excel function and find the value of V C Now use the binomial option pricing model in conjunction with the following data to value a call option: Current stock price, P = $27.00 Risk - free rate, r RF = 5 % Strike price, X = $25.00 Up factor for stock price, u = 1.41 Down factor for stock price, d = 0.71 Years to expiration, t = 0.50 E) Calculate the stock price using the binomial model and find the option payoff in each case, in addition to the value of N S F) Calculate the portfolio payoff in each case and find the present value of the payoff, in addition to the value of the call option

Please answer All

Which of the following would not shift the demand curve of golf balls?

A.    an increase in the price of golf clubs.

B.     a decrease in the popularity of golf.

C.     an increase in the number of golfers.

D.    an expected increase in the price of golf balls.

E.     a decrease in the price of golf balls.

Given that the price of a shirt decreased (in 2008) from $35.00 per shirt with 40 thousand shirts demanded and (in 2009) to $25.00 per shirt with 80 thousand shirts demanded. Using the midpoint formula, calculate the price elasticity of demand for shirts.

A.    |0.10|

B.     |-0.20|

C.     |1.0|

D.    |-2.0|

E.     |-0.05|

Factors that affect a product’s price elasticity of demand are

A.    availability of close substitutes.

B.     passage of time.

C.     necessity versus luxury.

D.    definition of the market.

E.     All of the above are correct.

For most consumers, a snack food such as potato chips has a price elasticity of demand that is

A.    unitary elastic.

B.     perfectly inelastic.

C.     extremely elastic, almost perfectly elastic.

D.    All of the above are correct.

E.     None of the above are correct.

When the price of a taco falls by 10%, the quantity of pizza demanded decreases by 5%. The cross elasticity of demand for pizza with respect to the price of a taco demonstrates that tacos and pizza are

A.    substitute goods.

B.     complementary goods.

C.     factors of production.

D.    intermediate goods.

E.     cannot be determined with the given information.

Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home-improvement stores are shown in the table below.

      
Lopes

      
Increase the size of store
and parking lot

Do not increase the size of
store and parking lot

HomeMax

Increase the size
of store and
parking lot

Lopes = $1.0 million
HomeMax = $1.5 million

Lopes = $0.4 million
HomeMax = $3.4 million

Do not increase
the size of store
and parking lot

Lopes = $3.2 million
HomeMax = $0.6 million

Lopes = $2.0 million
HomeMax = $2.5 million

Refer to Table 17-13. Pursuing its own best interest, HomeMax will
    a.   increase the size of its store and parking lot only if Lopes also increases the size of its store and parking lot.
   b.   increase the size of its store and parking lot only if Lopes does not increase the size of its store and parking lot.
   c.   increase the size of its store and parking lot regardless of the decision made by Lopes.
   d.   not increase the size of its store and parking lot regardless of the decision made by Lopes.

(Related to Checkpoint 15.2) (EBIT-EPS analysis) Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea. The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be located in Dallas, Houston, and San Antonio. To finance the new venture two plans have been proposed: bullet

Plan A is an all-common-equity structure in which $2.2 million dollars would be raised by selling 82,000 shares of common stock. bullet

Plan B would involve issuing $1.2 million in long-term bonds with an effective interest rate of 11.7 percent plus another $ 1.0 million would be raised by selling 41000 shares of common stock. The debt funds raised under Plan B have no fixed maturity date, in that this amount of financial leverage is considered a permanent part of the firm's capital structure.

Abe and his partners plan to use a 35 percent tax rate in their analysis, and they have hired you on a consulting basis to do the following:

a. Find the EBIT indifference level associated with the two financing plans.

b. Prepare a pro forma income statement for the EBIT level solved for in part a that shows that EPS will be the same regardless whether Plan A or B is chosen.

Alka-Seltzer is an over-the-counter medicine used to treat acid indigestion and heartburn. The active pharmaceutical ingredients (API) in each Alka-Seltzer tablet are aspirin (325mg), citric acid 1:000 103 mg, and sodium bicarbonate 1:916 103 mg. For a single dose, two Alka-Seltzer tablets are dissolved in 4.0 fluid ounces of water (1.0 fluid ounce 29:57 mL), causing the following reaction:

C6H8O7aq 3NaHCO3aq ! 3H2Ol 3CO2g Na3C6H5O7aq |fflfflfflffl{zfflfflfflffl} |fflfflfflfflfflffl{zfflfflfflfflfflffl} |fflfflfflfflfflfflffl{zfflfflfflfflfflfflffl} citric acid sodium sodium citrate

bicarbonate

(a) What volume of CO2 gas (mL) at 25°C and 1 atm would be produced by a normal dose of Alka-Seltzer? Assume ideal-gas behavior and that the reaction goes to completion.

(b) Youwakeupfeelingmiserablebeforeyourmaterial-and-energy-balancesfinalexam,butyouknow you can’t miss it. You grab some Alka-Seltzer and an 11-ounce bottle of water. You drink just enough water to leave 4.0 fluid ounces in the bottle (you’ve had lots of practice with this). Then you drop in the two tablets, screw the cap tightly onto the bottle, and rush out the door. Calculate the pressure inside the bottle, assuming the temperature remains constant at 25°C and neglecting the volume of the tablets.

(c) How reasonable are the assumptions of ideal-gas behavior in Parts (a) and (b)?

(a) Assuming the undiluted catalyst solution is 1% mass/volume I₃K, how many moles of I₃K are present in reactions 1 and 3? The molecular weight of I3K is 420 g/mol.

(b) What is [I₃K] present in reactions 1 and 3 in units of molarity?

(c) What is [I₃K] present in reaction 2 in units of molarity?

Chart 1: 10 mL undiluted 1-2% IKI; and 5 ml 3% H₂O₂

Chart 2: 10 mL 0.5-1.0% IKI; and 5 ml 3% H₂O₂

Chart 3: 10 mL undiluted 1-2% IKI; and 5 ml 2.25% H₂O₂

1. Consider the following thermochemical equation: 2ZnS(s) + 3O2(g) → 2ZnO(s) + 2SO2(g) ∆H° = –878.2 kJ

(a) How much heat is released when 3.0 mol ZnS(s) reacts in excess oxygen?

(b) How much heat is released when 2.3 × 10^-2 mol ZnS(s) reacts in excess oxygen?

(c) What is the enthalpy change when 223.9 g ZnS(s) reacts in excess oxygen?

(d) What is the enthalpy change when 0.96 g ZnO(s) is produced?

2. Slaked lime (Ca(OH)2(s)) is produced when lime (calcium oxide, CaO(s)) reacts with liquid water. 65.2 kJ of heat is released for each mol of Ca(OH)2 that is produced.

(a) Write a thermochemical equation for the reaction.

(b) What is the enthalpy change when 523.3 kg of lime reacts with excess water?

3. The following reaction represents the complete combustion of hexane, C6H14(l) + 19/2O2(g) → 6CO2(g) + 7H2O(l) ∆H°= –4163 kJ

(a) If 0.537 mol of carbon dioxide is produced in the reaction represented by the equation above, how much heat is released by the reaction?

(b) If 25.0 kg of hexane is burned in sufficient oxygen, how much heat will be released?

(c) What mass of hexane is required to produce 1.0 × 10⁵ kJ of heat by complete combustion?

Problem 15-11
WACC and Optimal Capital Structure

F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows:

F. Pierce uses the CAPM to estimate its cost of common equity, rs and at the time of the analaysis the risk-free rate is 5%, the market risk premium is 5%, and the company's tax rate is 35%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 0.95. Based on this information, what is the firm's optimal capital structure, and what would be the weighted average cost of capital at the optimal capital structure? Do not round intermediate calculations. Round your answers to two decimal places.