# If the Rhine Company ignores the possibility that other firms may enter its market, it should set a price of \$10,000 for its product, which is a power tool. But ifit does so, other firms will begin to enter the market. During the next two years it will earn \$4 million per year, but in the following two years it will earn \$1million per year. On the other hand, if it sets a price of \$7,000, it will earn \$2.5 million in each of the next four years because no entrants will appear.Try various discount (interest) rates and draw a conclusion about the timing of profits

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Step 1

Calculation of Present values when Selling Price of the unit is \$10,000 and Firms enter into the market.

Calculation of present values at various discount rates using excel:

Step 2

The result of the above:

Conclusion:

When profits are changing every 2 years, then present value of profits are decreasing as the intrest rates are increasing.

Step 3

Calculation of Present values when Selling price per unit is \$7,000 and no firms can enter int...

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