Explain what happens to saving, investment, and the real interest rate in each of the following scenarios in a closed economy. Illustrate your answer using a saving-investment diagram. Label the axes and curves clearly.

a) Real money supply increases

b) The tax code changes so that business firms face higher tax rates on their revenue (offset by other lump-sum tax changes so there’s no overall change in tax revenue). The rise in taxes reduces desired investment, shifting the Id curve to the left: in equilibrium, this reduce real interest rate, reducing saving as well as investment.

c) Current output rises The rise in output raises desired saving, shifting the Sd curve to the right; in equilibrium, this reduces the real interest rate, increasing investment as well.

d) The average educational level rises, inducing an increase in the future marginal productivity of capital. The rise in future marginal productivity of capital raises desired investment, shifting the Id curve to the right; in equilibrium, this raises the real interest rate, increasing saving as well as investment. 

Contribution Margin Analysis—Sales

Select Audio Inc. sells electronic equipment. Management decided early in the year to reduce the price of the speakers in order to increase sales volume. As a result, for the year ended December 31, the sales increased by $23,500 from the planned level of $1,228,500. The following information is available from the accounting records for the year ended December 31.

a. Prepare an analysis of the sales quantity and unit price factors. Use a minus sign for any negative amounts.

b. Did the price decrease generate sufficient volume to result in a net increase in contribution margin if the actual variable cost per unit was $7, as planned?

My company sells California t-shirts to Bay Area tourists, and this is a perfectly competitive market. My cost function is given by ?(?) = ? ? ? ? .

a) Find my profit-maximizing quantity produced if the market price for my California t-shirts is $25. What would my profits be?

b) The COVID-19 pandemic reduces willingness and ability to travel and visit the Bay Area. At the same time, t-shirt companies have to pay for personal protective equipment for their workers and hire more staff to make sure that customers aren’t entering shops without masks on. Use the model of supply and demand to make a prediction about expected changes in price and quantity in this market due to these changes.

c) As the economy slips into recession a significant amount of uncertainty is introduced. Suppose that now there is a 20% chance that the recession is deep and the market price falls to $10 per shirt, otherwise the recession is relatively mild and the price falls to just $20 per shirt. Given this uncertainty, what should be the firm’s profit-maximizing level of output? (assume their cost function is still ?(?) = 1 4 ? 2 )

We are evaluating a project that costs $604,000, has an 8 year life, and has no salvage value. Assume that depreciation is straight-line to zero of the life of the project. Sales are projected at 55,000 units per year. Price per unit is $36, variable cost per unit is $17, and fixed cost are 685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project.

a. Calculate the accounting break-even point.

b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales.

c. What is the sensitivity of OCF to changes in the variable costs figure? Explain what your answer tells you about a $1 decrease in estimated variable cost.

In the previous problem, suppose the projections given for price, quantity, variable costs, fixed cost are all accurate to within plus or minus 10 percent. calculate the best-case and worst-case NPV figures.

LH Corp is evaluating a project that costs $724,000, has an 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life the project. Sales are projected at 75,000 units per year with price per unit is $39. Variable cost per unit is $23. Fixed costs are $850,000 per year. The tax rate is 35%, and the discount rate on this project is 15%. a). Calculate the accounting break-even point.

b). Calculate the base-case cash flow and NPV.

c). What is the sensitivity of NPV to changes in the sales figure? IF Sales dropped by 400 units, what is the corresponding change of NPV?

d). What is the sensitivity of operating cash flow to changes in the variable cost figure? Based on your calculation, how much is the change of operating cash flow if variable costs increased by $2 per unit?

e). Suppose the projections given above for price, quantity, variable costs, and fixed costs are all accurate to within ± 10%. Calculate the best-case and worst-case NPV figures.

Write a python program using the following requirements:

Create a class called Sentence which

• has a constructor that takes a sentence string as input.
  • The default value for the constructor should be an empty string
  • The sentence must be a private attribute in the class
• contains the following class methods:
  • get_all_words — Returns all the words in the sentence as a list
  • get_word — Returns only the word at a particular index in the sentence
    • Arguments: index
  • set_word — Changes the word at a given index in sentence to a new word
    • Arguments: index, new_word
    • Does not return anything
  • a str method — Returns the sentence as a string using the built in method

Include a unit test in an if __name__ block to test the class. Use assert to check for errors.

Unit Test Example:

• Set a sentence variable with a sentence of your choice
• Instantiate the Sentence object using the variable
• Test that get_all_words() correctly returns that sentence as a list
• Test that get_word(#) correctly returns the # word in the sentence
• Test that replace() actually changes a word in the sentence object
• Print the sentence before and after the word change using the built in str method

We are evaluating a project that costs $800,000, has an eight-year life, and has 20% salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 70,000 units per year. Price per unit is $40, variable cost per unit is $30, and fixed costs are $725,000 per year. The tax rate is 40 percent, and we require a 15 percent return on this project. a) Calculate the accounting break-even point. b) Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales. c) What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs. d) Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within +- 15 percent. Calculate the best-case and worst-case NPV figures

Returns on common stocks in the United States and overseas appear to be growing more closely correlated as economies become more interdependent. Suppose that the following population regression line connects the total annual returns (in percent) on two indexes of stock prices:

MEAN OVERSEAS RETURN = ?0.07 + 0.20 ? U.S. RETURN

1. What does this number say about overseas returns when the U.S. market is flat (0% return)? (Fill in blanks)

This says that the mean overseas return is ______ % when the U.S. return is 0%.

2.What does this number say about the relationship between U.S. and overseas returns? (Fill in blanks)

This says that when the U.S. return changes by 1%, the mean overseas return changes by ______ %.

3.We know that overseas returns will vary in years when U.S. returns do not vary. Write the regression model based on the population regression line given above. (Fill in blanks)

y_i = _____+ ______ x_i + ?_i, where y_i and x_i are observed overseas and U.S. returns in a given year, and ?_i are independent N(0, ?) variables.