Economic Analysis (The Roberta Wagner Tire Problem)
When Roberta Wagner first launched e-tire, she thought that she had a home run on her hands. It had always been hard to buy bicycle tires online: e-tire would be a onestop marketplace for bicycle tires, matching bicycle tire producers with customers. But Wagner wasn’t clear on one important detail: how to set the prices at which the producers would sell to consumers. So Wagner did some market research. She surveyed tire producers and came up with a model for supply. Given a price for bicycle tires, p, suppliers would be willing to sell 650 + 5 × p tires. Meanwhile, Wagner’s market research led to a simple equation for consumers’ demand for tires. Given a price, p, consumers would want 1,000 − 2 × p bicycle tires.
At the price of $30 per tire, how many tires are demanded and supplied?
Wagner could tell that the website was not working as well as she had planned. She took a deep breath and then decided to structure e-tire entirely differently. She eliminated the requirement for a fixed price, and instead allowed sellers and buyers to negotiate a price via public text message on the site. Suppose that the sellers decided to follow a simple rule: so long as there were unsold tires, they would cancel all transactions and try a new price, 10 dollars lower than the previous price. Conversely, as long as there were buyers without tires, they would cancel all transactions and try a new price, 10 dollars higher than the previous price. So they next try a price of 60 dollars.
What is the final price at which buyers and sellers will trade tires?
During the Summer and Fall of 2020, the COVID-19 crisis led to an enormous change in the demand for bicycles. Consumers were afraid to take public transportation and so instead purchased bicycles. Describe what this would do to the prevailing price on e-tire, using both a graph and a brief paragraph.
A ride-sharing app company that matches customers who want a ride somewhere with nearby drivers who will drive them. How does Wagner’s e-tire dilemma in Parts 1 and 2 relate to a ridesharing app, which has to set prices for those rides?
Many people, sadly, require a kidney transplant from a living donor. There are typically many more people who need a kidney than there are people donating kidneys. Use any country’s rules for organ donation as an example. Explain what this problem has to do with the shortage or surplus of kidneys facing patients with kidney disease. How would your team recommend solving the kidney shortage or surplus problem? What tradeoffs did you discuss in coming up with your solution?
In: Economics
Assume that you are an investment analyst preparing an analysis of an investment opportunity for a client. Your client is considering the acquisition of an apartment complex from a developer at the point in time when the apartments are ready for first occupancy. You have developed the following information.
1) Number of units = 40
2) First year market rent per unit = $430 per month
3) Rent is projected to increase by 8% each year
4) Annual vacancy rate = 3% of PGI
5) Annual collection loss = 2% of PGI
6) Annual operating expense = 35% of EGI
7) Miscellaneous yearly income (parking and washers/dryers) = $800
8) Annual miscellaneous income is expected to remain constant
9) Purchase price = $2,000,000
10) Estimated value of land = $600,000
11) Anticipated mortgage terms: a) Loan to value ratio = .80 b) Interest rate = 6% c) Years to maturity = 25 d) Points charged = 3 e) Prepayment penalty = 2% of outstanding balance f) Level payment, fully amortized g) Fixed interest rate, monthly payments
12) Anticipated holding period = 4 years
13) Proportion by which property is expected to appreciate during the holding period -- 5.5% a year
14) Estimated selling expenses as proportion of future sales price = 5%
15) Marginal income tax rate for the client = 28%
16) It is assumed that the property is put into service on January 1st and sold on December 31st
17) Assume the client is "active" in the property management
18) It is assumed that the client has an adjusted gross income of $95,000 and has no other passive income not offset by other passive losses (for each year of the anticipated holding period)
19) Client's minimum required after tax rate of return on equity = 12.5% Calculate:
b. For the first year of operation the:
(1) Overall (cap) rate of return
(2) Equity dividend rate
(3) Gross income multiplier
(4) Debt coverage ratio
Please show work!
In: Accounting
On 1 April 2018, Shen Ltd acquired specialized equipment by issuing $2,700,000 of face value, 9% ten-year bonds to the equipment’s manufacturer. No cash changed hands. The bonds will pay interest semi-annually, beginning with the first payment due on 1 October 2018. The market interest rate on the issue date was 10%. The equipment, which was available for use immediately, will be depreciated under the declining balance method at 30%. The estimated residual value is $200,000. Ignore GST. Round to two decimal places.
Required:
In: Accounting
The company has three bond issues and uses the effective interest method to amortize discounts/premiums. Information for each is below:
There was a bond issue with a par value of $250,000 on July 1, 2015 when the market rate of interest was 6%. The bonds have a coupon rate of 5% and interest is paid semiannually on January 1 and July 1. The bonds have a ten-year life when issued. This bond issue is convertible into common stock at the rate of 10 shares for every $1,000 of face value (note - common stock has a par value of $10 per share). On January 2, 2019, $50,000 of face value was converted into common stock. The company uses the book value method to record conversions. The market price of the stock was $90 per share when the bonds were converted.
On May 1, 2015, the company had a bond issue with principal of $200,000. The bond issue has a seven-year life. Interest is payable semi-annually on May 1 and November 1. The coupon rate is 7%. The market rate of interest at issue was 6%. On November 2, 2020, the company called the entire bond issue at 115.
On November 1, 2014, the company issued serial bonds
at par. The face value of the issue was $150,000, and the
coupon interest rate is 6%. Interest is paid annually on
November 1st. The principal will be paid with six equal payments of
$30,000 on November 1, 2015 through November 1, 2019.
Required:
Compute the price of the first two bonds (the serial bonds are issued at par).
Prepare amortization tables (effective interest method) for the first two bonds from the issuance date.
Prepare all journal entries needed for each bond from the date of issue through December 31, 2017. The company has a year-end of December 31st.
Prepare the journal entry to record the bond conversion (first bond) on January 2, 2019.
Prepare the journal entry to record the bond call (second bond) on November 2, 2020
In: Accounting
On 1 April 2018, Shen Ltd acquired specialised equipment by issuing $2,700,000 of face value, 9% ten-year bonds to the equipment’s manufacturer. No cash changed hands. The bonds will pay interest semi-annually, beginning with the first payment due on 1 October 2018. The market interest rate on the issue date was 10%. The equipment, which was available for use immediately, will be depreciated under the declining balance method at 30%. The estimated residual value is $200,000. Ignore GST. Round to two decimal places.
Required:
In: Accounting
Ag-Coop is a large farm cooperative with a number of agriculture-related manufacturing and service divisions. As a cooperative, it pays no federal income taxes. The company owns a fertilizer plant that processes and mixes petrochemical compounds into three brands of agricultural fertilizer: greenup, maintane, and winterizer. The three brands differ with respect to selling price and the proportional content of basic chemicals.
Ag-Coop’s Fertilizer Manufacturing Division transfers the completed product to the cooperative’s Retail Sales Division at a price based on the cost of each type of fertilizer plus a markup.
The Manufacturing Division is completely automated so that the only costs it incurs are the costs of the petrochemical feedstocks plus overhead that is considered fixed. The primary feedstock costs $1.50 per pound. Each 100 pounds of feedstock can produce either of the following mixtures of fertilizer.
| Output Schedules (in pounds) | ||
| A | B | |
| Greenup | 60 | 70 |
| Maintane | 30 | 20 |
| Winterizer | 10 | 10 |
Production is limited to the 850,000 kilowatt-hours monthly capacity of the dehydrator. Due to different chemical makeup, each brand of fertilizer requires different dehydrator use. Dehydrator usage in kilowatt-hours per pound of product follows:
| Product | Kilowatt-Hour Usage per Pound |
| Greenup | 35 |
| Maintane | 28 |
| Winterizer | 46 |
Monthly fixed costs are $90,000. The company currently is producing according to output schedule A. Joint production costs including fixed overhead are allocated to each product on the basis of weight.
The fertilizer is packed into 100-pound bags for sale in the cooperative’s retail stores. The sales price for each product charged by the cooperative’s Retail Sales Division follows:
| Sales Price per Pound | |||
| Greenup | $ | 11.00 | |
| Maintane | 9.50 | ||
| Winterizer | 10.90 | ||
Selling expenses are 20 percent of the sales price.
The Retail Sales Division manager has complained that the prices charged by the Manufacturing Division are excessive and that he would prefer to purchase from another supplier.
The Manufacturing Division manager argues that the processing mix was determined based on a careful analysis of the costs of each product compared to the prices charged by the Retail Sales Division.
Required:
a. Assume that joint production costs including fixed overhead are allocated to each product on the basis of weight. What is the cost per pound of each product, including fixed overhead and the feedstock cost of $1.50 per pound, given the current production schedule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. Assume that joint production costs including fixed overhead are allocated to each product on the basis of net realizable value if sold through the cooperative’s Retail Sales Division. What is the allocated cost per pound of each product, given the current production schedule? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
c. Assume that joint production costs including fixed overhead are allocated to each product on the basis of weight. Calculate the operating profit under both Schedule A and Schedule B. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
In: Accounting
In: Operations Management
The Railway Service in Andaleland
The Railway service industry in Andaleland is categorised into groups according to the areas of operation and revenue. International rail services are offered by firms who own large and luxurious trains that travel to just about anywhere in the continent. Companies in this segment typically have revenues in excess of $1 billion. National trains have revenues between $100 million and $1 billion and travel domestically only. Regional rail companies have smaller trains with revenues below $100 million. Cargo trains do not carry commercial passengers. They specialise in the transportation of goods.
The suppliers to the railway industry are caterers, railway stations, train manufacturers and security firms which are oligopolies, meaning that the railway companies are in a less advantageous position. Key suppliers include manufacturers of trains Zanzi and Taraget who dominate the market and are able to garner significant profits at the railway companies’ expense by virtue of their specialised position. Another key supply for the industry is fuel, the price of which is currently proving a very problematic issue for companies.
The top three competitors are Virgin, Bota and Dannes railway companies. Other competitors include TubaTran, Canker Rail, Andale West, Continental Rails, Jama Rail, Atlantic Rail Northwest Rail, Southwest Rail and Una Railways. Most rail companies make extremely low returns; indeed many are currently losing as the industry is characterised by many price wars. Most railway companies also compete with non-price competitive tactics such as frequent traveller programs.
The customers of the industry can be categorised into three groups; business travellers, leisure travellers and buyers of large blocks of seats known as consolidators, who buy excess seat inventory at large discounts. Switching costs are very low and buyers are price sensitive.
Communication technology has proven to be a viable substitute for some form of business travel. Also, alternatives such as auto travel and bus transportation exist for leisure travellers who frequent regional and national train travel.
The capital intensity of the railway industry would appear to pose a formidable entry barrier. However, Atlantic Rail, TubeTran and other entrants have proven that financing is available when there is a convincing business plan and when economic conditions are conducive to the business. Brand name and frequent traveller plans would also seem to be deterrents to entry however, Atlantic Rail’s success demonstrates that customers are willing to switch to other railway companies if the price is right.
(Source: Adapted from Carpenter et al, (2011) Strategic Management, A Dynamic Perspective, New Jersey, Pearson Prentice Hall)
a. Identify four strategic groups in the railway service industry and explain why they do not compete directly against each other in the industry
b. Examine two barriers in the case that could act as obstruction to keep away new entrants from entering and reducing the profits of the established firms.
c. Explain two reasons why these barriers have or have not been effective in preventing new entrants from entering the industry
d. Identify two supplier groups in the industry and explain why they have high bargaining power over the rail companies.
e. Explain how two substitute services would pose a threat to the profitability of the companies in the industry?
In: Operations Management
The following options prices were observed for calls and puts on Lannister Ltd for the trading day of July 6 2019. Use this information in Questions 3-8. The stock was priced at $163.37. The expirations were July 17, August 21 and October 16. The continuously compounded risk-free rates associated with the three expirations were 0.0517, 0.0542 and 0.0565, respectively. The options have European expiries.
| Lannister Ltd CALLS | |||
| STRIKE | JUL | AUG | OCT |
| 150 | 9.50 | 11.25 | 13.61 |
| 155 | 5.70 | 7.96 | 10.88 |
| 160 | 2.23 | 5.01 | 8.04 |
| 165 | 0.77 | 2.79 | 6.90 |
| Lannister Ltd PUTS | |||
| STRIKE | JUL | AUG | OCT |
| 150 | 0.17 | 1.18 | 2.69 |
| 155 | 0.71 | 2.66 | 4.44 |
| 160 | 2.22 | 4.63 | 6.60 |
| 165 | 5.61 | 7.42 | 8.81 |
Question: Showing all formula and workings where applicable; Let the standard deviation of the continuously compounded return on the stock be 20 percent. Ignore dividends. Respond to the following:
In: Finance
A clothing store sells shoes, pants, and tops. The store also allows a customer to buy an “outfit,” which consists of three items: one pair of shoes, one pair of pants, and one top. Each clothing item has a description and a price. The four type of clothing items are represented by the four classes Shoes, Pants, Top, and Outfit. All four classes implement the following ClothingItem interface.
public interface ClothingItem
{
/** Return the description of the clothing item
*//
String getDescription();
/** Return the price of the clothing item */
double getPrice();
}
The following diagram shows the relationship between the ClothingItem interface and the Shoes, Pants, Top, and Outfit classes.
The store allows customers to create Outfit clothing items, each of which includes a pair of shoes, pants, and a top. The description of the outfit consists of the description of the shoes, pants, and top, in the order, separated by “/” and followed by a space and “outfit”. The price of an outfit is calculated as follows. If the sum of the prices of any two items equals or exceeds $100, there is a 25% discount on the sum of the prices of all three items. Otherwise, there is a 10% discount.
For example, an outfit consisting of sneakers ($40), blue jeans ($50), and a T-shit ($10), would have the name “sneakers/blue jeans/T-shirt outfit” and a price of 0.90(40 + 50 +10) = $90.00. An outfit consisting of loafers ($50), cutoffs ($20), and dress-shirt ($60), would have the description “loafers/cutoffs/dress-shirt outfit” and a price of 0.75(50 + 20 + 60) = $97.50
Write the Outfit class the implements the ClothingItem interface. Your implementation must include a constructor that takes three parameters representing a pair of shoes, pants, and a top, in that order.
A client class that uses the Outfit class should be able to create an outfit, and its description, and get its price. Your implementation should be such that the client code has the following behavior:
Shoes shoes;
Pants pants;
Top top;
/* Code to initialize shoes, pants, and top */
ClothingItem outfit =
new Outfit(shoes, pants, top); //Compiles without error
ClothingItem outfit =
new Outfit(pants, shoes, top); //Compile-time error
ClothingItem outdit =
new Outfit(shoes, top, pants); //Compile-time error
In: Computer Science