Write an equation giving profit as a function of the number of lightweight compasses produced. (ii) At the moment the company produces 2 million lightweight compasses and makes a profit of $18,000,000, but you would like to reduce prod
Q: Consider a market with the following supply and demand. (It may help to draw a graph for these…
A: Below is the solution:-
Q: Oxicon Inc. manufactures several different types of candy for various retail stores. The…
A:
Q: Salalah Methanol company management is considering three competing investment Projects Option1:…
A: a) Payback period Declaration presentation cumulative cash flow Sohar
Q: CA Corporate has an available funds of $200,000 is considering for new investment opportunities. The…
A: Investment portfolio of stocks is given as follows:
Q: Consider the sports ratings model . If you were going to give more recent games more weight, how…
A: The sports ratings model calculates the ratings of a sports team based on actual and predicted point…
Q: The management of the Keribels Company wishes to apply the Miller-Orr model to manage its cash…
A: Given data, Transaction cost =$100 Cash flow variance=75000 I =0.05%
Q: A computer reseller needs to decide how many laptops to order next month. The lowest end laptop…
A: From the above mentioned information the demand probabilities for, P (0) = 0.3, P (1) = 0.4, P(2)…
Q: Suppose we are borrowing $1,000 at 12% annual interestwith 60 monthly payments. Assume equal…
A: LP model and solution is as follows:
Q: A hardware company sells a lot of low-cost, highvolumeproducts. For one such product, it is…
A: given, low sales = 60,000 high sales = 100,000 variable cost per unit 25% chance of = $6…
Q: strategy that maximizes the department store chain's expected profit earned by purchasing and…
A: πij= Revenue from regular price +Revenue from closeoutprice-cost of purchase =…
Q: A publisher prints copies of a popular weekly tabloid for distribution and sale. The fixed costs are…
A: Cost function indicating the sum value of the cost. Here, we develop the cost function by…
Q: A market analyst working for a small appliance manufacturer finds that if the firm produces and…
A: Answer (a) When given a graph of a profit equation with the number of items produced on the x-axis…
Q: If a company employs n salespersons, its gross sales in thousands of dollars may be regarded as a…
A:
Q: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the…
A: A budget deficit is a situation when the country’s expenditure increased from its revenue.
Q: The relationship between marketing expenditures (x) and sales (y) is given by the following formula,…
A:
Q: A computer reseller needs to decide how many laptops to order next month. The lowest end laptop…
A: Hi There, thanks for posting the question. But as per Q&A authoring guidelines, we must answer…
Q: 2. An analyst determines the intrinsic value of a stock to be equal to 255 lei. If the stock's…
A: The correct option is A) Overvalued Overview: To estimate a portfolio' intrinsic worth, portfolio…
Q: 3. Imagine that the hazard rate of a company's bankruptcy decreases over time (e.g. because firms…
A: Profit can be explained as the money which is obtained by selling something for more than what it…
Q: We must invest all our money in two stocks: x and y.The variance of the annual return on one share…
A:
Q: A buyer for a large department store chain must place orders with an athletic shoe manufacturer six…
A: Given, Cost Price = $65 Selling Price = $85 Closeout sell price = $55 Demand (100s of pairs)…
Q: A building contains 1000 lightbulbs. Each bulb lastsat most five months. The company maintaining…
A: In the above question, the company wants to decide whether the group replacement policy is…
Q: Home price y is estimated as a function of the square footage of a house x and a dummy variable d…
A: Given: y = 118.90 +0.12x + 52.60d i.) For a house with mountain views, d = 1 For a house with…
Q: You are also given the following table of average returns over the last 50 years: Stocks T-Bonds…
A: (a) Utilizing the historical methodology, the estimate to calculate risk premium for Steel Products…
Q: Your mom will lend you money so long as you agree to pay her back within five years and you offer to…
A: Borrowed amount will be the present value of cash flow at a discount rate of 5%.
Q: Your company orders packs of gums and, then, sells them to retailers. The profit you get from each…
A: A payoff matrix is a table where techniques of one player are recorded in lines and those of the…
Q: Two companies are producing widgets. It costs the first company q12 dollars to produce q1 widgets…
A: Given: First company Second company q12 dollars 0.5q22 dollars
Q: I own a single share of Wivco stock. I must sell myshare at the beginning of one of the next 30…
A:
Q: You have prepared a coin flipping simulation. In your simulation, a value of less than 0.5 is…
A: Given simulations random numbers : 0.021, 0.323, 0.200, 0.157, 0.278, 0.886, 0.699, 0.038, 0.315,…
Q: A local finance company quotes a 16 percent interest rate on one-year loans. So, if you borrow…
A: The timeline is: To find the APR and EAR, we need to use the actual cash flows of the loan. In…
Q: Appliances Unlimited (AU) sells refrigerators. Anyrefrigerator that fails before it is three years…
A: Warranty refers to a facility that is provided to consumers in case of any malfunctioning product…
Q: Consider a consumer that lives only for two periods. He works in period 1 (and gets income Y1) and…
A: We can say that where current consumption is solely dependent on current income, according to…
Q: What should be the production volume for that quarter?
A: Material requirement plan will helps the management to identify the timely ordering of items with…
Q: A company that manufactures air-operated drain valve assemblies currently has $110,000 available to…
A: given values, Rate = 10% (NPMT) no of periods =5 FV = 0
Q: The Smiths save £32,000 per year for retirement. They are now in their mid-thirties, and they expect…
A:
Q: You are thinking of starting Peaco, which will produce Peakbabies, a product that competes with Ty’s…
A:
Q: The management of the Keribels Company wishes to apply the Miller-Orr model to manage its cash…
A: Given data, Transaction cost =$100 Cash flow variance=75000 I =0.05%
Q: In economics, the multiplier effect refers to the fact that when there is an injection of money to…
A: given, $8 billion tax spend = 83%
Q: Taxes The function T(x) represents the tax bill T of a single person whose adjusted gross income is…
A: Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
Q: A company manufactures two products. If it charges aprice pi for product i, it can sell qi units of…
A: We want to maximize the value of the function f(p1,p2) = q1(p1-25)+q2(p2-72)…
Q: You are thinking of starting Peaco, which will produce Peakbabies, a product that competes with Ty's…
A:
Q: A researcher wants to study the effect of a price change on the sales of various brands of a certain…
A: given,
Q: A salesperson for Fuller Brush has three options: quit,put forth a low-effort level, or put forth a…
A:
Q: The daily demand for a product in a shop can assume one of the following values: 100, 120, or 130…
A: The optimal stock assigns the specific measure of stock a business needs to satisfy routine interest…
Q: How long will it take $12,000 to grow to $19,000 if the investment earns interest at the rate of…
A: WE WOULD USE THE FORMULA OF COMPOUND INTEREST HERE. IT IS THE INTEREST WHIC IS ADDED OVER PRINCIPAL…
Q: A savings and loan association estimates that the amount of money on deposit will be 10,000,000…
A: The revenue and cost for a bank are confusing as the bank loses money by paying interest on…
Q: You have prepared a coin flipping simulation. In your simulation, a value of less than 0.5 is…
A: In a random experiment, the probability is an indicator of how likely an occurrence is to take…
A company has determined that its profit for a product can be described by a linear function.
The profit from the production and sale of 150 units is $455, and the profit from
250 units is $895.
(b) You are the CEO for a lightweight compasses manufacturer. The demand
function for the lightweight compasses is given by p = 40 − 4q
2where q
is the number of lightweight compasses produced in millions.It costs the company $15
to make a lightweight compass.
(i) Write an equation giving profit as a function of the number of lightweight compasses
produced.
(ii) At the moment the company produces 2 million lightweight compasses and makes a profit
of $18,000,000, but you would like to reduce production. What smaller number of
lightweight compasses could the company produce to yield the same profit?
Step by step
Solved in 2 steps
- In the financial world, there are many types of complex instruments called derivatives that derive their value from the value of an underlying asset. Consider the following simple derivative. A stocks current price is 80 per share. You purchase a derivative whose value to you becomes known a month from now. Specifically, let P be the price of the stock in a month. If P is between 75 and 85, the derivative is worth nothing to you. If P is less than 75, the derivative results in a loss of 100(75-P) dollars to you. (The factor of 100 is because many derivatives involve 100 shares.) If P is greater than 85, the derivative results in a gain of 100(P-85) dollars to you. Assume that the distribution of the change in the stock price from now to a month from now is normally distributed with mean 1 and standard deviation 8. Let EMV be the expected gain/loss from this derivative. It is a weighted average of all the possible losses and gains, weighted by their likelihoods. (Of course, any loss should be expressed as a negative number. For example, a loss of 1500 should be expressed as -1500.) Unfortunately, this is a difficult probability calculation, but EMV can be estimated by an @RISK simulation. Perform this simulation with at least 1000 iterations. What is your best estimate of EMV?Rerun the new car simulation from Example 11.4, but now introduce uncertainty into the fixed development cost. Let it be triangularly distributed with parameters 600 million, 650 million, and 850 million. (You can check that the mean of this distribution is 700 million, the same as the cost given in the example.) Comment on the differences between your output and those in the example. Would you say these differences are important for the company?A company manufacturers a product in the United States and sells it in England. The unit cost of manufacturing is 50. The current exchange rate (dollars per pound) is 1.221. The demand function, which indicates how many units the company can sell in England as a function of price (in pounds) is of the power type, with constant 27556759 and exponent 2.4. a. Develop a model for the companys profit (in dollars) as a function of the price it charges (in pounds). Then use a data table to find the profit-maximizing price to the nearest pound. b. If the exchange rate varies from its current value, does the profit-maximizing price increase or decrease? Does the maximum profit increase or decrease?
- Rerun the new car simulation from Example 11.4, but now use the RISKSIMTABLE function appropriately to simulate discount rates of 5%, 7.5%, 10%, 12.5%, and 15%. Comment on how the outputs change as the discount rate decreases from the value used in the example, 10%.Suppose you currently have a portfolio of three stocks, A, B, and C. You own 500 shares of A, 300 of B, and 1000 of C. The current share prices are 42.76, 81.33, and, 58.22, respectively. You plan to hold this portfolio for at least a year. During the coming year, economists have predicted that the national economy will be awful, stable, or great with probabilities 0.2, 0.5, and 0.3. Given the state of the economy, the returns (one-year percentage changes) of the three stocks are independent and normally distributed. However, the means and standard deviations of these returns depend on the state of the economy, as indicated in the file P11_23.xlsx. a. Use @RISK to simulate the value of the portfolio and the portfolio return in the next year. How likely is it that you will have a negative return? How likely is it that you will have a return of at least 25%? b. Suppose you had a crystal ball where you could predict the state of the economy with certainty. The stock returns would still be uncertain, but you would know whether your means and standard deviations come from row 6, 7, or 8 of the P11_23.xlsx file. If you learn, with certainty, that the economy is going to be great in the next year, run the appropriate simulation to answer the same questions as in part a. Repeat this if you learn that the economy is going to be awful. How do these results compare with those in part a?You are considering a 10-year investment project. At present, the expected cash flow each year is 10,000. Suppose, however, that each years cash flow is normally distributed with mean equal to last years actual cash flow and standard deviation 1000. For example, suppose that the actual cash flow in year 1 is 12,000. Then year 2 cash flow is normal with mean 12,000 and standard deviation 1000. Also, at the end of year 1, your best guess is that each later years expected cash flow will be 12,000. a. Estimate the mean and standard deviation of the NPV of this project. Assume that cash flows are discounted at a rate of 10% per year. b. Now assume that the project has an abandonment option. At the end of each year you can abandon the project for the value given in the file P11_60.xlsx. For example, suppose that year 1 cash flow is 4000. Then at the end of year 1, you expect cash flow for each remaining year to be 4000. This has an NPV of less than 62,000, so you should abandon the project and collect 62,000 at the end of year 1. Estimate the mean and standard deviation of the project with the abandonment option. How much would you pay for the abandonment option? (Hint: You can abandon a project at most once. So in year 5, for example, you abandon only if the sum of future expected NPVs is less than the year 5 abandonment value and the project has not yet been abandoned. Also, once you abandon the project, the actual cash flows for future years are zero. So in this case the future cash flows after abandonment should be zero in your model.)
- Suppose you begin year 1 with 5000. At the beginning of each year, you put half of your money under a mattress and invest the other half in Whitewater stock. During each year, there is a 40% chance that the Whitewater stock will double, and there is a 60% chance that you will lose half of your investment. To illustrate, if the stock doubles during the first year, you will have 3750 under the mattress and 3750 invested in Whitewater during year 2. You want to estimate your annual return over a 30-year period. If you end with F dollars, your annual return is (F/5000)1/30 1. For example, if you end with 100,000, your annual return is 201/30 1 = 0.105, or 10.5%. Run 1000 replications of an appropriate simulation. Based on the results, you can be 95% certain that your annual return will be between which two values?A European put option allows an investor to sell a share of stock at the exercise price on the exercise data. For example, if the exercise price is 48, and the stock price is 45 on the exercise date, the investor can sell the stock for 48 and then immediately buy it back (that is, cover his position) for 45, making 3 profit. But if the stock price on the exercise date is greater than the exercise price, the option is worthless at that date. So for a put, the investor is hoping that the price of the stock decreases. Using the same parameters as in Example 11.7, find a fair price for a European put option. (Note: As discussed in the text, an actual put option is usually for 100 shares.)Referring to the retirement example in Example 11.6, rerun the model for a planning horizon of 10 years; 15 years; 25 years. For each, which set of investment weights maximizes the VAR 5% (the 5th percentile) of final cash in todays dollars? Does it appear that a portfolio heavy in stocks is better for long horizons but not for shorter horizons?
- Based on Grossman and Hart (1983). A salesperson for Fuller Brush has three options: (1) quit, (2) put forth a low level of effort, or (3) put forth a high level of effort. Suppose for simplicity that each salesperson will sell 0, 5000, or 50,000 worth of brushes. The probability of each sales amount depends on the effort level as described in the file P07_71.xlsx. If a salesperson is paid w dollars, he or she regards this as a benefit of w1/2 units. In addition, low effort costs the salesperson 0 benefit units, whereas high effort costs 50 benefit units. If a salesperson were to quit Fuller and work elsewhere, he or she could earn a benefit of 20 units. Fuller wants all salespeople to put forth a high level of effort. The question is how to minimize the cost of encouraging them to do so. The company cannot observe the level of effort put forth by a salesperson, but it can observe the size of his or her sales. Thus, the wage paid to the salesperson is completely determined by the size of the sale. This means that Fuller must determine w0, the wage paid for sales of 0; w5000, the wage paid for sales of 5000; and w50,000, the wage paid for sales of 50,000. These wages must be set so that the salespeople value the expected benefit from high effort more than quitting and more than low effort. Determine how to minimize the expected cost of ensuring that all salespeople put forth high effort. (This problem is an example of agency theory.)An automobile manufacturer is considering whether to introduce a new model called the Racer. The profitability of the Racer depends on the following factors: The fixed cost of developing the Racer is triangularly distributed with parameters 3, 4, and 5, all in billions. Year 1 sales are normally distributed with mean 200,000 and standard deviation 50,000. Year 2 sales are normally distributed with mean equal to actual year 1 sales and standard deviation 50,000. Year 3 sales are normally distributed with mean equal to actual year 2 sales and standard deviation 50,000. The selling price in year 1 is 25,000. The year 2 selling price will be 1.05[year 1 price + 50 (% diff1)] where % diff1 is the number of percentage points by which actual year 1 sales differ from expected year 1 sales. The 1.05 factor accounts for inflation. For example, if the year 1 sales figure is 180,000, which is 10 percentage points below the expected year 1 sales, then the year 2 price will be 1.05[25,000 + 50( 10)] = 25,725. Similarly, the year 3 price will be 1.05[year 2 price + 50(% diff2)] where % diff2 is the percentage by which actual year 2 sales differ from expected year 2 sales. The variable cost in year 1 is triangularly distributed with parameters 10,000, 12,000, and 15,000, and it is assumed to increase by 5% each year. Your goal is to estimate the NPV of the new car during its first three years. Assume that the company is able to produce exactly as many cars as it can sell. Also, assume that cash flows are discounted at 10%. Simulate 1000 trials to estimate the mean and standard deviation of the NPV for the first three years of sales. Also, determine an interval such that you are 95% certain that the NPV of the Racer during its first three years of operation will be within this interval.A company manufactures two products. If it chargesprice pi for product i, it can sell qi units of product i,where q1 = 60 - 3p1 + p2 and q2 = 80 - 2p2 + p1. Itcosts $5 to produce a unit of product 1 and $12 to produce a unit of product 2. How many units of eachproduct should the company produce, and what pricesshould it charge, to maximize its profit? Use spreadsheet modelling in Excel