MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Chapter 6, Problem 25PAA
To determine
Duration of years of contract between HG and FF
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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?
Gerry likes driving small cars and buys nearly identical ones whenever the old one needs replacing. Typically, he trades in his old car for a new one costing about $15,000. A new car warranty covers all repair costs above standard maintenance (standard
maintenance costs are constant over the life of the car) for the first two years. After that, his records show an average repair expense (over standard maintenance) of $2600 in the third year (at the end of the year), increasing by 50 percent per year thereafter.
If a 30 percent declining-balance depreciation rate is used to estimate salvage values and interest is 8 percent, how often should Gerry get a new car?
Click the icon
view the table of compound interest factors for discrete compounding periods when i = 8%.
Gerry should get a new car every years, which has the
V EAC of s
(Round to the nearest whole number as needed)
Gerry likes driving small cars and buys nearly identical ones whenever the old
one needs replacing. Typically, he trades in his old car for a new one costing
about $15 000. A new car warranty covers all repair costs above standard
maintenance (standard maintenance costs are constant over the life of the car)
for the first two years. After that, his records show an average repair expense
(over standard maintenance) of $2500 in the third year (at the end of the year),
increasing by 50% per year thereafter. If a 30% declining balance depreciation
rate is used, and interest is 8%, how often should Gerry get a new car?
Chapter 6 Solutions
MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
Ch. 6 - Prob. 1CACQCh. 6 - Prob. 2CACQCh. 6 - Prob. 3CACQCh. 6 - Prob. 4CACQCh. 6 - Prob. 5CACQCh. 6 - Prob. 6CACQCh. 6 - Prob. 7CACQCh. 6 - Prob. 8CACQCh. 6 - Prob. 9CACQCh. 6 - Prob. 10CACQ
Ch. 6 - Prob. 11PAACh. 6 - DonutVille caters to its retirement population by...Ch. 6 - Prob. 13PAACh. 6 - Prob. 14PAACh. 6 - Prob. 15PAACh. 6 - Prob. 16PAACh. 6 - Prob. 17PAACh. 6 - Prob. 18PAACh. 6 - Prob. 19PAACh. 6 - Prob. 20PAACh. 6 - Prob. 21PAACh. 6 - Prob. 22PAACh. 6 - Prob. 23PAACh. 6 - Prob. 24PAACh. 6 - Prob. 25PAACh. 6 - Prob. 26PAACh. 6 - Prob. 27PAA
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