Exam 5: Investment Decisions: Look Ahead and Reason Back

Use the following information to answer Questions 39 - 43 Jim's Production is planning on acquiring a competitive firm with a view to change production technologies.The two firm technologies produce the same output but with different cost functions.Jim's Production technology has a cost function = 1000 + 0.10Q whereas the competitor's cost function = 500 + 0.15Q. -If the company plans to produce 5000 units of output,is acquiring the competitor's technology a good idea?

Use the following information to answer the next two questions: A publisher is deciding whether to invest in a new printer that needs an initial investment of $500.This will increase cash flows in the first year by $600 for the next two years. -If the cost of capital increased to 25%,does the firm invest in the printer?

Hold-up can only occur if

Use the following information to answer Questions 39 - 43 Jim's Production is planning on acquiring a competitive firm with a view to change production technologies.The two firm technologies produce the same output but with different cost functions.Jim's Production technology has a cost function = 1000 + 0.10Q whereas the competitor's cost function = 500 + 0.15Q. -At what quantity is Jim's Production indifferent between two technologies?

If the annual interest rate is 0%,the net present value of receiving $550 in the next year is:

Use the following information to answer the next two questions: A manufacturing firm is deciding whether to invest in a new printer that needs an initial investment of $150,000.This will increase cash flows in the first year by $80,000 and $75,000 in the second year. -If the cost of capital decreased to 1%,does the firm invest in the new technology?

Use the following information to answer Questions 33 - 35 Sarah's Machinery Company is deciding to dump their current technology A for a new technology B with small fixed costs but big marginal costs.The current technology has fixed costs of $500 and marginal costs of $50 whereas the new technology has fixed costs of $250 and marginal costs of $100. -If the company plans to produce 9 machines,which technology should the firm choose?

Use the following information to answer the next two questions: A firm's fixed costs are $10 million.The firm charges $1800 for each unit and the firm's marginal costs are $1,000. -The break-even quantity is

Use the following information to answer the next two questions: A manufacturing firm is deciding whether to invest in a new printer that needs an initial investment of $150,000.This will increase cash flows in the first year by $80,000 and $75,000 in the second year. -If the interest rate is 10% then the net present value of these cash flows is

Assume a firm has the following cost and revenue characteristics at its current level of output: price=$8.00,average variable cost=$6.00 and average fixed cost =$4.00.In the long run,the firm

According to the Net Present Value (NPV)rule,managers choose to invest if

Use the following information to answer Questions 39 - 43 Jim's Production is planning on acquiring a competitive firm with a view to change production technologies.The two firm technologies produce the same output but with different cost functions.Jim's Production technology has a cost function = 1000 + 0.10Q whereas the competitor's cost function = 500 + 0.15Q. -Which firm has higher fixed costs?

Which of the following variables is not needed to determine the break-even quantity?

Which of the following will increase the break-even quantity?

The break-even quantity is

Use the following information to answer the next four questions: A clothing manufacturing firm is deciding whether to invest in a new technology that needs an initial investment of $45,000.This will increase cash flows in the first year by $25,000 and $30,000 in the second year.The firm's current fixed costs are $9,000 and marginal cost is $15.The firm currently charges $18 per unit. -If the interest is 5%,should the firm undertake the investment?

Break-even quantity is a point where

Consider a firm that produces 500,000 units per year.The firm's fixed costs are $100,000,marginal costs are $250 and the price per unit is $400.In the short-run,how low can price go before it is profitable to shut down?

If the interest rate is 11%,$1500 received at the end of 12 years is worth how much today?

Use the following information to answer Questions 33 - 35 Sarah's Machinery Company is deciding to dump their current technology A for a new technology B with small fixed costs but big marginal costs.The current technology has fixed costs of $500 and marginal costs of $50 whereas the new technology has fixed costs of $250 and marginal costs of $100. -At what quantity is Sarah Machinery indifferent between two technologies?