Q: Suppose you are deciding whether to invest $100 million in a
Suppose you are deciding whether to invest $100 million in a steel mill. You know the expected cash flows for the project, but they are risky – steel prices could rise or fall in the future. How would...
See AnswerQ: How does a consumer trade off current and future costs when selecting
How does a consumer trade off current and future costs when selecting an air conditioner or other major appliance? How could this selection be aided by an NPV calculation?
See AnswerQ: What is meant by the “user cost” of producing an
What is meant by the “user cost” of producing an exhaustible resource? Why does price minus extraction cost rise at the rate of interest in a competitive market for an exhaustible resource?
See AnswerQ: What determines the supply of loanable funds? The demand for loanable
What determines the supply of loanable funds? The demand for loanable funds? What might cause the supply or demand for loanable funds to shift? How would such a shift affect interest rates?
See AnswerQ: Look again at Figure 11.17. Suppose that the marginal
Look again at Figure 11.17. Suppose that the marginal costs c1 and c2 were zero. Show that in this case, pure bundling, not mixed bundling, is the most profitable pricing strategy. What price should b...
See AnswerQ: A firm uses cloth and labor to produce shirts in a factory
A firm uses cloth and labor to produce shirts in a factory that it bought for $10 million. Which of its factor inputs are measured as flows and which as stocks? How would your answer change if the fir...
See AnswerQ: How do investors calculate the net present value of a bond?
How do investors calculate the net present value of a bond? If the interest rate is 5 percent, what is the present value of a perpetuity that pays $1000 per year forever?
See AnswerQ: What is the effective yield on a bond? How does one
What is the effective yield on a bond? How does one calculate it? Why do some corporate bonds have higher effective yields than others?
See AnswerQ: What is the Net Present Value (NPV) criterion for investment
What is the Net Present Value (NPV) criterion for investment decisions? How does one calculate the NPV of an investment project? If all cash flows for a project are certain, what discount rate should...
See AnswerQ: Fill in the missing information in the following tables. For each
Fill in the missing information in the following tables. For each table, use the information provided to identify a possible trade. Then identify the final allocation and a possible value for the MRS...
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