In the context of recent research on the Weighted Average Cost of Capital (WACC), the Adjusted Present Value (APV) and the Flow-to-Equity (FTE), which of these methods would you use for the following companies (explain your choice).

A firm with uncertain growth rates for the next 10 years.

A tourist agency in Florida claims the mean daily cost of means and lodging for a family of four traveling in Florida is $568. You work for a consumer protection advocate and want to test the claim. In a random sample of 50 families of four traveling in Florida, the mean daily cost of means and lodging is $584 and the standard deviation is $25

1. Do you have enough evidence to reject the agency’s claim?

2. What type of error is possible based on your conclusion?

3. What would be a consequence of this type of error in this situation?

1. Suppose in a duopoly market there are two firms, 1 and 2, each with a cost function given as TC₁ = 10Q₁ and TC₂ = 10Q₂. The inverse demand in the market is P = 100 – 2(Q₁ + Q₂). The firms are homogeneous product duopoly.
   1. Suppose the market is characterized by Cournot oligopoly. Calculate each firm’s profit-maximizing output, price, and profit. Be sure to show all steps needed for this question.
   2. Now suppose the market is characterized by Stackelberg oligopoly. Calculate each firm’s profit-maximizing output, price, and profit.
2. 3. Now suppose each firm colludes in its price and output decision. Calculate each firm’s profit-maximizing output, price, and profit.

Cell phone cost is normally distributed with a mean of $83, and a standard deviation of $16. For a randomly selected cell phone, find the following:

What is the probability that the cost is more than $ 110?

What is the probability that the cost is between $ 90 and $100?

What is the cost of the top 2% of users?

Do problem 1 for a sample of 10 cell phones.

The method of depletion used to allocate the cost of natural resources to future periods is most similar to the straight line depreciation method

True or false

A company is considering investing in project X. The company has a cost of capital of 10% p.a. Project X is a 9-year project with an initial cost of 400,000. The project will generate the following cash flows at the end of the years:

a)    Calculate the payback period (in years) for project X. Round your answer to 2 decimal places. Do not include the unit. Do not use comma separators. E.g. 1234.56

Answer

b)    Calculate the net present value (NPV) for project X. Round your answer to the nearest dollar. Do not include the $ symbol. Do not use comma separators. E.g. 123456

Answer

The CEO of FUN Corp. believes the cost of capital used in the previous question is inaccurate. You have been assigned to estimate cost of capital for FUN Corp.

• The company has a capital structure which consists of 80% long-term debt and 20% common stock.
• The company’s credit rating is Ba1/BB+ (equivalent to spread of 2%). Beta of debt is 0.
• The company’s common stock currently sells for $35 per share with 2.5 million shares outstanding.
• The company’s marginal tax rate is 30%. Market risk premium is 5%. Risk-free rate is 5%.
• FUN Corp.’s most comparable competitor is Toy Inc. who has no debt. Toy Inc’s equity beta is 1.4.

Answer the following questions (please show reasonings or calculations):

1. What is Toy Inc’s cost of capital?
2. What is FUN Corp’s cost of capital?

1. Assume a constant cost industry. Assume it is a competitive market and that the market is in a long-run equilibrium. Graph this.Show what happens in both the short run and the long run if the government imposes a one-time tax of $200 on each firm. That is, no taxes will ever again be imposed. What if the firm does not believe that no taxes will ever again be imposed, could this change your analysis?

2. Keeping with a constant cost industry, assume instead a report comes out showing that this good causes cancer. Show the short run and the long run result. Be sure to progress in a LOGICAL manner; each step is important.

3. Assume an increasing cost industry. The demand for this product increases. Show the short run and the long run result. Be sure to progress in a LOGICAL manner; each step is important

The simplified balance of the Greek Connection is shown below. It had sales and a cost of goods sold as shown in last rows of the Table.

a. Calculate The Greek Connection’s net working capital in 2015.

Answer: the net working capital in 2015 is $. (round to full $, no decimals)

b. Calculate the cash conversion cycle of The Greek Connection in 2015. Assume 365 days/year for b. and c.

Answer: the cash conversion cycle is  days. (round to one decimal)

c. The industry average days sales outstanding ratio is 20 days. What would the cash conversion cycle for The Greek Connection have been in 2015 had it matched the industry average days sales outstanding?

Answer: the cash conversion cycle would be  days. (round to one decimal)