Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 2, Problem 3P
a.
To determine
The return on equity and return on assets for the company.
b.
To determine
The company that performed better in terms of profitability.
c.
To determine
The impact on the return on equity results if two companies are merged.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
An investor has $24,000 to invest in bonds of AAA and B qualities. The AAA bonds yield an average of 6% and the B bonds yield 10%. The investor requires that at least three times as much money should be invested in AAA bonds as in B bonds.
How much should be invested in each type of bond to maximize the return? What is the maximum return?
Define the variables needed to solve this problem.
Organize your given information. (This part NOT graded, but encouraged.)
Write the complete linear programming problem, which includes the objective function and all constraints.
Graph and make sure all lines are labeled and shaded/solution region is clear and easy to identify.
Create a corner point chart. Remember to mark your solution.
Answer in a complete sentence or two:
How much should be invested in each type of bond to maximize the return?
What is the maximum return?
Problem 13-21
Please answer the questions that are in Bold: #1. Expected profit and #3, the EVSI
A real estate investor has the opportunity to purchase land currently zoned residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table:
State of Nature
Rezoning Approved
Rezoning Not Approved
Decision Alternative
S1
S2
Purchase, d1
600
-200
Do not purchase, d2
0
0
If the probability that the rezoning will be approved is 0.5, what decision is recommended?Recommended decision = Purchase What is the expected profit?Expected profit = $ (fill in the blank) thousands.
The investor can purchase an option to buy the land. Under the…
CONVEX Ltd. is a new company that was established on 1st January, 2020 to oversee the production of coronavirus vaccines for Ghana. On 1st July, 2020, CONVEX Ltd. acquired 75% shares in CONCAVE Ltd., a pharmaceutical company, to speed up the vaccine production. As a new graduate from UGBS, CONVEX Ltd. has employed you as their accountant. At a management meeting held, a number of issues were raised about how CONVEX Ltd. should deal with its transactions and investment in CONCAVE Ltd. and the need to conduct financial ratio analysis to determine the profitability and sustainability of CONCAVE Ltd. In a memo to management, provide your views on how the following issues should be addressed.
Issue DAssuming you have done the financial ratio analysis and you have realized that profitability is looking good but liquidity is not impressive and needs urgent attention. What do you think could be the problem with CONCAVE Ltd. that your company needs to help them address?
Chapter 2 Solutions
Contemporary Engineering Economics (6th Edition)
Knowledge Booster
Similar questions
- Assume that you’re the director of one of the corporations listed below and have been presented with the business opportunity described in the scenario. Would you advise the corporation to accept the opportunity? Consider both the financial return expected and any related ethical concerns. ToyCo has just been informed that its wooden trains produced in China contain lead paint and can no longer be sold in the United States. However, a distributor offers to negotiate a deal with a foreign company to sell the trains in a South American country that has no laws addressing the presence of lead paint in children’s toys. BabyHealth is seeing decreasing sales of its powdered infant formula in the United States due to more and more mothers choosing to breastfeed their babies. In an effort to offset these losses, BabyHealth chooses to sell its formula in third-world countries. However, it is widely known that the water sources in these countries are often contaminated and not boiled prior to…arrow_forwardA firm learns of an investment opportunity that will increase future revenue, two years from now, by $121 million. The marginal resource cost of the physical capital today is $100 million dollars. Should this firm make this investment at an interest rate of 10% Why? Using the information from this scenario a . What is the discounted percentage for this investment? What information does it provide? b . Other things being equal, could this investment be made at a higher interest rate? Lower? Why? c.Other things being equal, could this investment be made for a longer term? Shorter term ? Why?arrow_forwardTrue or false, no need to explain. 1. The most ideal method of evaluating whether an investment is profitable or not is to compute the number of years one can recover the investment. 2. If the profitability index is greater than zero, the investment is acceptable. 3. Consumers and producers may not be able to come up with optimal decisions if there is an incomplete information.arrow_forward
- This is not a writing assignment, this is a multiple-choice question Which of the below statements regarding financial investments decisions is likely to be INCORRECT? Group of answer choices When purchasing stocks, it is best to look at a variety of factors such as the overall financial condition of the business, how much debt it has, revenue inflows, projected markets, and the quality of management. In the case of financial investments, it is wise to diversify one's portfolio. Although the return is generally proportional to risk, in long-run investments the volatility (risk) smooths out (becomes less risky). When purchasing stocks, all else being the same, usually, it is better to purchase a stock with a very high price/earnings (or P/E) ratio than one with a lower P/E ratio.arrow_forwardSuppose that you invest $50,000 into a downpayment on a $250,000 house, which has a price appreciation of 3% per year. Your mortgage is fixed at $ 36,000 per year, and your tenants pay you $24,000 per year. Property taxes, maintenance, and other expenses cost $5,000 per year. Suppose that after 25 years, you sell your property. Would it have been better to invest $ 50,000 in the stock market, assuming it has returns of 9% per year over the same time period (25 years)? Why? Show your calculations and justify your answer. For the purposes of this question, suppose that inflation is zero.arrow_forwardA project has a net present value of zero, what return is earned on this project when the discount rate is 15%? Explain your answerarrow_forward
- A firm decides to pay total dividends of $100,000 in period 1 and $471,000 in period 2. Charlie owns 10% of the firm and has no other wealth or income. What is Charlie’s maximum period 2 consumption (C2) if the market rate of return (i) is 10.00% and he plans to consume $7,000 in period 1 (C1)?arrow_forwardIn the Southern Company Managerial Challenge, which alternative for complying with the Clean Air Act creates the greatest real option value? How exactly does that alternative save money? Why? Explain why installing a scrubber “burns” this option.arrow_forwardConsider the following two projects. Both have costs of $5,000 in Year 1. Project 1 provides benefits of $2,000 in each of the first four years only. The second provides benefits of $2,000 for each of Years 6 to 10 only. Compute the net benefits using a discount rate of 6%. Repeat using a discount rate of 12 percent. What can you conclude from this exercise?arrow_forward
- The expression “6/10, net 45” means that the customers receive a 6% discount if they pay within 10 days; otherwise, they must pay in full within 45 days. What would the seller's cost of capital have to be in order for the discount to be cost justified? 66.5714% 62.5714% 65.5714% 61.5714%arrow_forwardKingdom Enterprises is a Indian exporter of agriculture products and files all of its financial statements in Indian Rupees (INR). The company’s director, George Bidden, an American national has been praised for his performance. The head office management disagrees, arguing that sales in America have dropped significantly in recent years. Discuss whose point of view is more realistic. 2018 2019 2020 Total Net Sales, INR 2,542,991 2,831,711 3,010,000 Percent sales from America 26% 28% 23% Average Exchange Rate (INR/$) INR 70/$ INR 69.5/$ INR 71.21/$arrow_forwardSemi-Salt Industries began its operation in 1975 and remains the only firm in the world that produces and sells commercial-grade polyglutamate. While virtually anyone with a degree in college chemistry could replicate the firm’s formula, due to the relatively high cost, Semi-Salt has decided not to apply for a patent. Despite the absence of patent protection, Semi-Salt has averaged accounting profits of 5.5 percent on investment since it began producing polyglutamate—a rate comparable to the average rate of interest that large banks paid on deposits over this period. Do you think Semi-Salt is earning monopoly profits? Why?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning