PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 22, Problem 10PS
Summary Introduction
To discuss: The appropriate option according to the given statement.
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A proprietor (CHRISTIA) who just inherited a building is considering using it in a new business venture. Projections for the business are: revenue of $100,000, fixed cost of $30,000, and variable cost of $50,000. If the business is not started, the owner will work for a company for a wage of $23,000. Also, there have been two offers to rent the building, one for $1,000 per month and one for $1,200 per month. What is the relevant cost of the building (per annum) to be consider in determining whether to start the business?
Use the information below to answer the following question:
The owner of the Krusty Krab is considering selling his restaurant and retiring. An investor has offered to buy the Krusty Krab for $350,000 whenever the owner is ready for retirement. The owner is considering the following three alternatives:
Sell the restaurant now and retire.
Hire someone to manage the restaurant for the next year and retire. This will require the owner to spend $50,000 now, but will generate $100,000 in profit next year. In one year the owner will sell the restaurant.
Scale back the restaurant's hours and ease into retirement over the next year. This will require the owner to spend $40,000 on expenses now, but will generate $75,000 in profit at the end of the year. In one year the owner will sell the restaurant.
If the interest rate is 7%, compare the alternatives.
A proprietor who just inherited a building is considering using it in a new business venture.Projections for the business are: revenue of $100,000, fixed cost of $30,000, and variable costof $50,000. If the business is not started, the owner will work for a company for a wage of$23,000. Also, there have been two offers to rent the building, one for $1,000 per month andone for $1,200 per month. What are the expected annual net economic profits (losses) to theowner if the new business is started?
A. $20,000 B. $(3,000) C. $(15,000) D. $(17,400)
Chapter 22 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 22 - Real options Respond to the following comments. a....Ch. 22 - Prob. 2PSCh. 22 - Real options True or false? a. Real-options...Ch. 22 - Prob. 4PSCh. 22 - Real options Describe each of the following...Ch. 22 - Expansion options Look again at the valuation in...Ch. 22 - Expansion options Look again at Table 22.2. How...Ch. 22 - Prob. 8PSCh. 22 - Timing options Look back at the Malted Herring...Ch. 22 - Prob. 10PS
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