Practice Exam Problems 1 - Cost Benefit & TVM
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Apr 3, 2024
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P
RACTICE
E
XAM
P
ROBLEMS
SM132
Cost Benefit and TVM
1.
"If equivalent investment opportunities trade simultaneously in different competitive markets, then they must trade for the same price in both markets."
What do we call the above statement?
A)
the Net Present Value rule
B)
the Law of One Price
C)
the Valuation Principle
D)
the time value of money
2.
A candy company decides to close down its chocolate division. It has on hand 10 tons of cocoa beans, a commodity that has a market price of $200 per ton. The cocoa beans were originally purchased for $1400 per ton. Given that the company has no use for the cocoa beans, and that it would cost the company $3000 to store them, what is the value
of the 10 tons of cocoa beans to the
company today?
Value of the 20 tons of cocoa today = 10 tons * $200 per ton = $2000
3.
Your sister offers to sell you her used iPhone 5s for $150. You check eBay and notice that used iPhone 5s phones are selling for $210. You don’t like iPhones and are planning to buy a new Samsung Galaxy Note5 for $695. What is the net value of buying your sister’s iPhone 5s?
A)
$210 – the price you can get for the iPhone 5s on eBay
B)
$485 – the cost of the Galaxy Note5 less the price you will get for the iPhone 5s on eBay
C)
$635 – the cost of the Galaxy Note5 less the difference between the purchase and resale price of the iPhone 5s.
D)
$60 – the difference between purchase and resale price of the iPhone 5s.
4.
Assume the interest rate is 4%
Having $100 today is equivalent to having what amount in one year? $100*(1+4%) = $104
Having $100 in one year is equivalent to having what amount today? $100/(1+4%) = $96.15
5.
Owen expects to receive $30,000 at the end of next year from a trust fund. If a bank loans money at an interest rate of 8.2%, how much money is he able to borrow from the bank on the basis of this information? $30,000/(1+8.2%) = $27,726
P
RACTICE
E
XAM
P
ROBLEMS
SM132
Answer key:
1.
B
2.
$2000
3.
D
4.
$104, $96.15
5.
$27,726
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Question 2
Lamya has initial investment of SR45, 000. If it were to be invested on stocks, the market interest rate would be 0.12 (12%).However, the industry uses capital and labor as inputs and sells 2, 800 belts per month at SR25 market price. If the cost of the machine that produces the belts is SR 30,000 and labor cost is 20,000. Calculate the following:
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2
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4
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3.2 Differentiate between accounting costs and economic costs. Motivate your answer with the aid of examples
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6. Let p(x) = 4 – 0.0002x be the price (in TL) of each unit of a certain product required to
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(a) (-
as large as possible?
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answer letter E only!
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An increase in the cost of heating and
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c) - X
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Question Completion Status:
QUESTION 1
Alex has a budget of $100 a month for movie tickets and restaurant meals. A movie ticket will cost $10 and a
restaurant meal costs $20. Which of the following combinations is part of Alex's budget constraint?
O a. 2 movie tickets and 4 restaurant meals
O b. 2 movie tickets and 5 restaurant meals
O c. 2 movie tickets and 1 restaurant meal
O d. 4 movie tickets and 4 restaurant meals
@
2
F2
QUESTION 2
Irfan has the budget constraint described in the graph below. If Irfan purchases 1 hour of tutoring per month and
decides to increase his purchases to 2 hours per month, what is the opportunity cost of the 2nd tutoring hour?
Irfan's Budget Constraint
month
3
987
Click Save and Submit to save and submit. Click Save All Answers to save all answers.
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5. The profit, P(x), of a video company, in thousands of dollars, is given by the equation
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13. A company finds that it can sell out a certain product that it produces, at the rate of Tk. 2 per unit.
It estimates the cost function of the product to be Tk. 100
오
2 50
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(i) Find the expression for the total profit, if q units are produced and sold.
(ii) Find the number of units produced that will maximize profit.
(iii) What is the amount of this maximum profit?
(iv)What would be the profit if 6000 units were produced?
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26
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林
5.
Refer to the accompanying table below. The marginal cost of the 3rd unit of this activity is:
Units of Activity
Total Cost
Total Benefit
O$
1.
2.
3.
092$
$210
4.
$150
$220
$210
$225
6.
Multiple Choice
$25
$20
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M10
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9. A company has return on sales
of 15% at sales of $400,000. Its
fixed cost are $90,000; variable
costs are $25 per unit.A. What
are sales in units?B. What is
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What is income? *
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Price ($)
E
P3
P₂
11
11
Π
n+
MC
of
ATC
MR3
AVC
MR₂
-MR₁
Quantity
Question 4: Identify the profit or loss
incurred by indicating the area( for example
rectangle 0, P1, A, Qa represents a box
shaped area in the chart above).
O Loss: R, N, C P2
O Loss: P2, C, N, S
O Loss: R, N, Qc, 0
O Loss, R, N, H. S
O none of the above
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Q2 (a)
Kimberley-Clark makes luxury hampers for sale in a chain of high-class department
stores. The following financial information is available in Table Q2. Current output
and sales are set at 30,000 hampers per year, though the firm has the capacity to
produce 50,000 hampers per year.
Table Q2
COST ELEMENT
PRICE (RM)
1. Wholesale price
2. Labor and material costs
3. Bought-in components
4. Overheads
80
15
25
800,000
(iii)
Calculate the break-even quantity for the firm.
(iv)
Calculate the level of profit the firm is making.
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A4
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