The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that she will buy the company after five years. For the first $150,000 of profit, the vice president's compensation is a flat annual salary of $50,000 plus 60% of company profits. Beyond the first $150,000 in profits, the vice president's compensation is the salary she receives at $150,000 profit plus 10% of company profits in excess of $150,000. On the following graph, use the purple points (diamond symbols) to plot the vice president's salary as a function of annual profit, for the profits levels of $0, $50,000, $100,000, $150,000, $200,000, $250,000, and $300,000

The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that she will buy the company after five years. For the first $150,000 of profit, the vice president's compensation is a flat annual salary of $50,000 plus 60% of company profits. Beyond the first $150,000 in profits, the vice president's compensation is the salary she receives at $150,000 profit plus 10% of company profits in excess of $150,000. On the following graph, use the purple points (diamond symbols) to plot the vice president's salary as a function of annual profit, for the profits levels of $0, $50,000, $100,000, $150,000, $200,000, $250,000, and $300,000

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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The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that he will buy the company after five years. For the first $150,000 of profit, the vice president's compensation is a flat annual salary of $50,000 plus 90% of company profits. Beyond the first $150,000 in profits, the vice president's compensation is the salary he receives at $150,000 profit plus 10% of company profits in excess of $150,000.How do you plot the annual compensation of the vice president as a function of annual profit?
The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that he will buy the company after five years. For the first $150,000 of profit, the vice president's compensation is a flat annual salary of $50,000 plus 90% of company profits. Beyond the first $150,000 in profits, the vice president's compensation is the salary he receives at $150,000 profit plus 10% of company profits in excess of $150,000. How do you plot the profit of buying the company as a function of annual profit when you assume the company will be worth 10 million in five years?
HomeGrown is a small restaurant that specializes in serving local fruits, vegetables, and meats. The company has chosen to enter into a long-term relationship with Family Farms, a local farming operation. The two parties have decided to enter into a long-term contract, where Family Farms will supply produce to HomeGrown at specified prices and volume each year. Before signing a contract, HomeGrown is trying to decide how long the contract should be. It estimates that each year the contract covers saves the restaurant $1,000 in bargaining and opportunism costs. However, each year the contract covers also requires more legal fees. HomeGrown estimates that the number of hours required from lawyers, L, has a quadratic relationship with the number of years on the contract, so that L = Y2, where Y is the number of years for the contract. If HomeGrown’s lawyers charge $100 per hour, how long should the contract be?
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You have the opportunity to get a VEGGIE Café franchise (this specializes in BOCA veggie Burgers and other heart-healthy, non-GMO fast foods). You now manage three Big Bird Stick-e-Chicken shops for another owner, and feel you are ready to be your own boss. You estimate you can gross 70% of Stick-e-Chicken’s gross sales (which last year totaled $600,000). You will have to pay Veggie, Inc., an annual franchise fee of $1,500 plus another 4% of gross sales. You will have to pay two types of advertising expenses: local advertising (which will cost $6,000 a year) and your share of National advertising (which will be 2% of gross sales). A store location (formerly a Burger Hut) is available for only $6,000 a year plus a yearend rent bonus of 1% of estimated gross sales greater than $60,000. You will have to borrow money from a bank at 10% per annum (which will cost you $18,500 a year in interest). Your life savings of $50,000 will have to be invested in the business (thus you will…
You have the opportunity to get a VEGGIE Café franchise (this specializes in BOCA veggie Burgers and other heart-healthy, non-GMO fast foods). You now manage three Big Bird Stick-e-Chicken shops for another owner, and feel you are ready to be your own boss. You estimate you can gross 70% of Stick-e-Chicken’s gross sales (which last year totaled $600,000). You will have to pay Veggie, Inc., an annual franchise fee of $1,500 plus another 4% of gross sales. You will have to pay two types of advertising expenses: local advertising (which will cost $6,000 a year) and your share of National advertising (which will be 2% of gross sales). A store location (formerly a Burger Hut) is available for only $6,000 a year plus a yearend rent bonus of 1% of estimated gross sales greater than $60,000. You will have to borrow money from a bank at 10% per annum (which will cost you $18,500 a year in interest). Your life savings of $50,000 will have to be invested in the business (thus you will…
You have the opportunity to get a VEGGIE Café franchise (this specializes in BOCA veggie Burgers and other heart-healthy, non-GMO fast foods). You now manage three Big Bird Stick-e-Chicken shops for another owner, and feel you are ready to be your own boss. You estimate you can gross 70% of Stick-e-Chicken’s gross sales (which last year totaled $600,000). You will have to pay Veggie, Inc., an annual franchise fee of $1,500 plus another 4% of gross sales. You will have to pay two types of advertising expenses: local advertising (which will cost $6,000 a year) and your share of National advertising (which will be 2% of gross sales). A store location (formerly a Burger Hut) is available for only $6,000 a year plus a yearend rent bonus of 1% of estimated gross sales greater than $60,000. You will have to borrow money from a bank at 10% per annum (which will cost you $18,500 a year in interest). Your life savings of $50,000 will have to be invested in the business (thus you will…
A drug company is considering investing $100 million today to bring a weight loss pill to the market. At the end of one year, the firm will know the payoff; there is a 0.50 probability that the pill will sell at a high price and generate $37 million per year of profit forever and a 0.50 probability that the pill will sell at a low price and generate $I million per year of profit forever. The interest rate is 10%. Suppose the firm decides to wait one year to determine whether the pill will sell at a high or low price. The firm will not invest if it learns that the pill will sell at a low price. What is the net present value of waiting one year to make the investment?O $88 millionO$122.72 millionO $201.22 millionO $64.5 million
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XYZ corporation has budgeted P300,000 per year to pay for labor over the next five years. If thecompany expects the cost of labor to increase by P10,000 each year, what is the expected cost ofthe labor in the first year, if the interest rate is 10%