Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose its discount rate of 8% based on the rate of return it must pay its owners and creditors. Using that rate, Waterways then uses different methods to determine the best decisions for making capital outlays.

This year Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes.

The following information is available to use in deciding whether to purchase the new backhoes.

(a) Evaluate in the following ways whether to purchase the new equipment or overhaul the old equipment. (Hint: For the old machine, the initial investment is the cost of the overhaul. For the new machine, subtract the salvage value of the old machine to determine the initial cost of the investment.)

(1) Using the net present value method for buying new or keeping the old.

(2) Using the payback method for each choice. (Hint: For the old machine, evaluate the payback of an overhaul.)

(3) Comparing the profitability index for each choice.

(4) Calculate the internal rate of return factor for the new and old blackhoes

1. Consider a market of homogeneous products in which firms compete on price. Demand in this market is

given by

q(p) = 50 -10p

Consumers buy from the producer with the lowest price. If the prices of both firms are the same then they

purchase from E. There are both an incumbent firm M and a potential entrant E which can produce the good

at marginal costs 3 and 2 , respectively. Prior to entry, E must incur an entry cost equal to Ce is greater than or equal to 0 .

(a) Suppose that Ce = infinity . What are the equilibrium price, quantity, and surplus?

(b) Suppose that Ce = 0 . What are the equilibrium price, quantity, and surplus?

(c) What is the maximum value of Ce for which E does not make a loss if it enters?

(d) What is the maximum value of Ce for which it is optimal from a welfare perspective (i.e. total surplus)

for E to enter? (At the maximum value it is also optimal for E not to enter.)

2. Suppose that there is a single producer of a good and a single retailer. The producer’s marginal cost is 50

and the retailer’s marginal cost is the wholesale price w plus a unit retail cost equal to 50 . The producer

chooses the wholesale price and the retailer the retail price. The demand function is 200 - p .

(a) Write down the retailer’s profit function as a function of the retail price p and the wholesale price w .

(b) What is the optimal retail price choice as a function of the wholesale price?

(c) What is the corresponding quantity?

(d) What is the producer’s profit as a function of w ?

(e) What are hence the equilibrium values of w; p; q ?

(f) What are equilibrium producer and retailer pro ts (both separate and in aggregate)?

(g) Now suppose that the producer and retailer merge without a change in retail or production costs. Then

what would be the new equilibrium price, quantity, and profit?

(h) Provide a brief intuitive explanation for why the retail price is now less but profits are higher.

(i) If the producer and retailer are still separate rms, then how much of a $1 increase in the unit producer

cost gets passed through to the retailer and how much to the consumer?

(j) How would a $1 increase in the unit retail cost affect the wholesale and retail prices? Please explain.

3. Suppose that there is a nut manufacturer and a bolt manufacturer. Consumers need one of each. The cost

of producing a nut is 30 and the cost of producing a bolt is also 10 . Demand is

q(Pn; Pb) = 280 - 4pn - 4pb

(a) What are the equilibrium prices, quantities, and profits?

(b) What would be the corresponding numbers if the firms merged? You only need to set one combined price

for a nut–bolt pair.

(c) Explain why the price of a nut–bolt pair went down yet profits went up.

4. Consider a market for differentiated products with two producers. Each producer is tied to a single retailer.

Each producer firm sets a wholesale price. Then, the retailer chooses a retail price. The demand functions

are (

q1(p1, p2) = 100 - 3p1 + 2p2,

q2(p1, p2) = 100 + 2p1 - 3p2,

The production cost of each unit of either good is 56 . There are no retail costs and no fixed costs.

(a) For given wholesale prices w1;w2 , derive the optimal retail prices p1, p2 as a function of w1, w2 .

(b) Express the producers’ profit functions in terms of w1;w2 .

(c) What are the optimal wholesale prices?

(d) What are the optimal retail prices?

(e) What are retailer profits?

(f) What are producer profits?

(g) What would have been per firm profits absent a retail channel?

(h) What is the range of franchise fee amounts that would make both the producer and the retailer better

off with a retail channel?

An article in the October 11, 2006, issue of the Washington Post claimed that 15% of high school students used cursive writing on the essay portion of the SAT exam in the academic year 2005-2006 (Pressler, 2006). Suppose you take a random sample from those exams and see what proportion of the sample used cursive writing for the essay. Assume the sample size is 180 do the following:

• A -- Determine what π and N are.
• B -- Describe the sampling distribution.
• C -- Show that the CLT holds.
• D -- What does the CLT say about the sampling distribution?
• E -- What is the probability of obtaining a sample where more than half of the students wrote their essay in cursive?
• F -- What is the probability of obtaining a sample where between 10 and 25% wrote their essay in cursive?
• G -- What is the probability of obtaining a sample where less than 12% of the students wrote their essay in cursive?

In 2020, Carson is claimed as a dependent on his parent's tax return. His parents report taxable income of $200,000 (married filing jointly). Carson's parents provided most of his support. What is Carson's tax liability for the year in each of the following alternative circumstances? Use Tax Rate Schedule, Tax Rates for Net Capital Gains and Qualified Dividends for reference.

a. Carson is 17 years old at year-end and earned $14,000 from his summer job and part-time job after school. This was his only source of income.

b. Carson is 23 years old at year-end. He is a full-time student and earned $14,000 from his summer internship and part-time job. He also received $5,000 of qualified dividend income. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

It is a tax question.

Resistance training is a popular form of conditioning aimed at enhancing sport performance and is widely used among high school, college and professional athletes. A random sample of   270 patients of three age groups (adolescents, young adults and older adults) admitted to the emergency rooms with the injury code “weightlifting” was obtained. These injuries were classified as “accidental” if caused by dropped weight or improper equipment use. Is age and sport injury related?

a.       Set the hypothesis testing Ho and H1 for chi square

b.      Use the chi square formula and procedure to solve the problem (as shown in the PPT presentation and textbook pp. 269-70).

c.      Discuss the result. What does the result tell us? Is there a significant relationship between age and injury?

The following equation has been estimated:

=1028.10+19.3 hsize-1.90 hsize_squared-53.29 female-156.26 black+37.87 female*black

(6.29) (3.83) (0.53) (4.29) (14.66) (18.15)

The variable sat is the combined SAT score, hsize is the size of the students' high school graduating class in hundreds. The variable female is a gender dummy variable equal to 1 for females and 0 otherwise. Another variable black is a race dummy variable equal to 1 for black and 0 otherwise. Robust standard error in the parentheses.

(1)  Holding hsize fixed, what is the estimated difference in SAT score between nonblack males and black males?

(2) Is this estimated difference calculated in (1) statistically significant from 0? Calculate the t statistics.

(3) How statistically significant is this estimated difference?

(4) Holding hsize fixed, what is the estimated difference in SAT score between black females and nonblack male?

Could you please type it?

A researcher wishes to examine the relationship between wage earned and educational level of workers. For a sample of 4000 workers she has data on hourly earnings (measured in Dollar), age of the worker (in years), worker’s gender, years of experience, number of years with the present employer, size of the firm in which the worker is employed, and highest educational qualification (with 4 classifications: no qualification, secondary school certificate, bachelor degree or PhD)

1. Explain how you would set up a model to address the researcher’s key interest.
2. Based on your model, how would you estimate the predicted impact on wages of holding a PhD compared to having a bachelor’s degree.
3. If the researcher uses ln(wage) as the dependent variable, how would the estimated coefficients be interpreted?
4. What general advice would you give the researcher in relation to her work – eg. what econometric issues should she be aware of in conducting this research and interpreting the results?

Consider the following scenario in the state of Taxopia.

One family has annual income of $190,000, while another family has an annual income of only $30,000. Under what circumstances would this outcome be considered unfair in terms of the process view of fairness?

The family with the higher income is headed by a person who is highly educated and has several degrees, whereas the family with the low income is headed by someone with just a high school education.

The primary income earner in the family with the high income has a high-paying job that requires significant skills, whereas the primary income earner in the family with the lower income has a low-skill, low-paying job.

In the family with the high income, both spouses work, whereas the family with the lower income relies on Social Security payments.

The family with the higher income runs a thriving business but receives a significant amount of government income transfers and tax breaks.