Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers. If your average variable cost C=$20/unit, annualized cost of investment to build a hard drive factory I=$30 million, and market price (bailout market price in the event Dell does not buy) Pm=$22/unit, what is your company's RSI (relationship specific investment)?

Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers. If your average variable cost C=$20/unit, annualized cost of investment to build a hard drive factory I=$30 million, and market price (bailout market price in the event Dell does not buy) Pm=$22/unit, what is your company's RSI (relationship specific investment)?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter1: Introduction: What This Book Is About

Section: Chapter Questions

Problem 1.1IP

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Show in excel A firm has a capital budget of $30,000 and is considering three possible independent projects. Project A has a present outlay of $12,000 and yields $4, 281 per annum for 5 years. Project B has a present outlay of $10,000 and yields $4,184 per annum for 5 years. Project C has a present outlay of $17,000 and yields $5,802 per annum for 10 years. Funds which are not allocated to one of the projects can be placed in a bank deposit where they will earn 15%. (a) Identify six combinations of project investments and a bank deposit which exhaust the budget. (b) Which of the above combinations should the firm choose: when the reinvestment rate is 15%? (ii) when the reinvestment rate is 20%?
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