All Related Questions of Opportunity Cost

Q: A rookie quarterback is negotiating his first NFL contract. His opportunity

A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end...

Q: An oil drilling company must choose between two mutually exclusive extraction projects

An oil drilling company must choose between two mutually exclusive extraction projects, and each costs $12 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t =...

Q: Hardin-Gehr Corporation (HGC) began operations 5 years ago

Hardin-Gehr Corporation (HGC) began operations 5 years ago as a small firm serving customers in the Detroit area. However, its reputation and market area grew quickly. Today HGC has customers all over...

Q: Professor Wendy Smith has been offered the following deal: A law

Professor Wendy Smith has been offered the following deal: A law firm would like to retain her for an upfront payment of $50,000. In return, for the next year the firm would have access to eight hours...

Q: Recall the HomeNet example from the chapter. Suppose HomeNet’s lab will

Recall the HomeNet example from the chapter. Suppose HomeNet’s lab will be housed in warehouse space that the company could have otherwise rented out for $200,000 per year during years 1–4. How does t...

Q: One year ago, your company purchased a machine used in manufacturing

One year ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many advantages; you can purchase it for $150,000 today....

Q: How does opportunity cost enter into the make or buy decision?

How does opportunity cost enter into the make or buy decision?

Q: Yuki (age 45 at year-end) has been contributing

Yuki (age 45 at year-end) has been contributing to a traditional IRA for years (all deductible contributions) and her IRA is now worth $50,000. She is trying to decide whether she should roll over her...

Q: American and Japanese workers can each produce 4 cars a year.

American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simpl...

Q: Pat and Kris are roommates. They spend most of their time

Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to brew a...

Q: Suppose that there are 10million workers in Canada and that each of

Suppose that there are 10million workers in Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year. a. What is the opportunity cost of producing a car in Cana...

Q: Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour

Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour. His friend Friday can gather 30 coconuts or catch 2 fish per hour. What is Crusoe’s opportunity cost of catching 1 fish? What is Friday...

Q: What items would you include to figure out the opportunity cost of

What items would you include to figure out the opportunity cost of a vacation to Disneyworld?

Q: Maria can read 20 pages of economics in an hour. She

Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends 5 hours per day studying. a. Draw Maria’s production possibilities frontier for reading...

Q: Your aunt is thinking about opening a hardware store. She estimates

Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per yea...

Q: A commercial fisherman notices the following relationship between hours spent fishing and

A commercial fisherman notices the following relationship between hours spent fishing and the quantity of fish caught: Hours…………..Quantity of Fish (in pounds) 0 ………………………………………………………0 1 …………………………………...

Q: Give an example of an opportunity cost that an accountant might not

Give an example of an opportunity cost that an accountant might not count as a cost. Why would the accountant ignore this cost?

Q: Farmer McDonald gives banjo lessons for $20 an hour. One

Farmer McDonald gives banjo lessons for $20 an hour. One day, he spends 10 hours planting $100 worth of seeds on his farm. What opportunity cost has he incurred? What cost would his accountant measure...

Q: What is the opportunity cost of investing in capital? Do you

What is the opportunity cost of investing in capital? Do you think a country can “overinvest” in capital? What is the opportunity cost of investing in human capital? Do you think a country can “overin...

Q: College students sometimes work as summer interns for private firms or the

College students sometimes work as summer interns for private firms or the government. Many of these positions pay little or nothing. a. What is the opportunity cost of taking such a job? b. Explain w...

Q: Following are a number of cost terms introduced in the chapter:

Following are a number of cost terms introduced in the chapter: Required: Choose the term or terms above that most appropriately describe the cost identified in each of the following situations. A co...

Q: Mr. Flint retired as president of Color Title Company but is

Mr. Flint retired as president of Color Title Company but is currently on a consulting contract for $45,000 per year for the next 10 years. a. If Mr. Flint’s opportunity cost (potential return) is 10...

Q: You are considering adding a new software title to those published by

You are considering adding a new software title to those published by your highly successful software company. If you add the new product, it will use capacity on your disk duplicating machines that y...

Q: KADS, Inc. has spent $400,000 on research

KADS, Inc. has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine wi...

Q: How does the slope of a budget line illustrate opportunity cost and

How does the slope of a budget line illustrate opportunity cost and trade-offs?  How does a budget line illustrate scarcity and the effect of limited incomes?

Q: Suppose that, on the basis of a nation’s production possibilities curve

Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can get th...

Q: Suppose you won $15 on a lotto ticket at the local

Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50 each....

Q: Suppose that you are given a $100 budget at work that

Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 each and pens cost $2.50 each, then the opportunity cost of purchasing one...

Q: Label each of the following statements as either true (“T”)

Label each of the following statements as either true (“T”) or false (“F”). 1. Relevant costs are also known as unavoidable costs. 2. Incremental costs are also known as differential costs. 3. An out-...

Q: Do you agree or disagree with each of the following statements?

Do you agree or disagree with each of the following statements? Explain. a. If it is possible to exchange 3 pounds of cheese for 2 bottles of wine, then the price of cheese is 2/3 the price of wine....

Q: The theory of comparative advantage was originally advanced by the 19th-

The theory of comparative advantage was originally advanced by the 19th-centuryeconomist David Ricardo as an explanation for why nations trade with one another.The theory claims that economic well-bei...

Q: Please explain whether the following statements are true or false.

Please explain whether the following statements are true or false. a.If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is positive. b. A firm...

Q: Japanese rice producers have extremely high production costs, due in

Japanese rice producers have extremely high production costs, due in part to the high opportunity cost of land and to their inability to take advantage of economies of large-scale production.Analyze t...

Q: The owner of a small retail store does her own accounting

The owner of a small retail store does her own accounting work.How would you measure the opportunity cost of her work?

Q: The end of the year is approaching. You’re going to meet

The end of the year is approaching. You’re going to meet with your CPA next week to do some end-of-the-year tax planning, so in preparation for that meeting, you look at your last month’s income state...

Q: APC is a contract manufacturer of printed circuit board assemblies that specializes

APC is a contract manufacturer of printed circuit board assemblies that specializes in manufacturing and test engineering support of complex printed circuit boards for companies in the defense and med...

Q: Aspen View produces a full line of sunglasses. This year it

Aspen View produces a full line of sunglasses. This year it began producing a new model of sunglasses, the Peak 32. It produced 5,300 pairs and sold 4,900 pairs. The following table summarizes the fix...

Q: a. Scottie Corporation has been offered a contract to produce 100

a. Scottie Corporation has been offered a contract to produce 100 castings a year for five years at a price of $200 per casting. Producing the castings will require an investment in the plant of $35,0...

Q: Sanchez Gadgets purchases innovative home kitchen gadgets from around the world (

Sanchez Gadgets purchases innovative home kitchen gadgets from around the world (such as kitchen torch, a pasta maker, and an automatic salad spinner) and sells them to specialty cooking retail stores...

Q: The Mopart Division produces a single product. Its standard cost system

The Mopart Division produces a single product. Its standard cost system uses a flexible budget to assign indirect costs on the basis of standard direct labor hours. At the budgeted volume of 4,000 dir...

Q: Roberts Machining specializes in fabricating metal racks that hold electronic equipment such

Roberts Machining specializes in fabricating metal racks that hold electronic equipment such as telephone switching units, power supplies, and so forth. Roberts designs and produces the metal stamping...

Q: Vintage Cellars manufactures a 1,000-bottle wine storage system

Vintage Cellars manufactures a 1,000-bottle wine storage system that maintains optimum temperature (55–57 °F) and humidity (50–80 percent) for aging wines. The system has a backup battery for power fa...

Q: You have just purchased a house and have obtained a 30-

You have just purchased a house and have obtained a 30-year, $200,000 mortgage with an interest rate of 10 percent. Required: a. What is your annual payment? b. Assuming you bought the house on Januar...

Q: When workers’ wages rise, their decision about how much time to

When workers’ wages rise, their decision about how much time to spend working is affected in two conflicting ways—as you may have learned in courses in microeconomics. The income effect is the impulse...

Q: Vegetron’s chief financial officer (CFO) is wondering how to analyze

Vegetron’s chief financial officer (CFO) is wondering how to analyze a proposed $1 million investment in a new venture code-named project X. He asks what you think. Your response sho...

Q: You have the chance to participate in a project that produces the

You have the chance to participate in a project that produces the following cash flows: The internal rate of return is 13%. If the opportunity cost of capital is 10%, would you accept the offer?

Q: Consider a project with the following cash flows: /

Consider a project with the following cash flows: a. How many internal rates of return does this project have? b. Which of the following numbers is the project IRR: (i) –50%; (ii)...

Q: Consider projects Alpha and Beta: / The opportunity cost

Consider projects Alpha and Beta: The opportunity cost of capital is 8%. Suppose you can undertake Alpha or Beta, but not both. Use the IRR rule to make the choice.

Q: Consider the following projects: / a. If the

Consider the following projects: a. If the opportunity cost of capital is 10%, which projects have a positive NPV? b. Calculate the payback period for each project. c. Which project(s) would a firm us...

Q: Explain why we refer to the opportunity cost of capital, instead

Explain why we refer to the opportunity cost of capital, instead of just “cost of capital” or “discount rate.” While you’re at it, also explain the following statement: “The opportunity cost of capita...

Q: The president’s executive jet is not fully utilized. You judge that

The president’s executive jet is not fully utilized. You judge that its use by other officers would increase direct operating costs by only $20,000 a year and would save $100,000 a year in airline bil...

Q: A factory costs $400,000. It will produce

A factory costs $400,000. It will produce an inflow after operating costs of $100,000 in year 1, $200,000 in year 2, and $300,000 in year 3. The opportunity cost of capital is 12%. Show your calculat...

Q: Look again at projects D and E in Section 5-3

Look again at projects D and E in Section 5-3. Assume that the projects are mutually exclusive and that the opportunity cost of capital is 10%. a. Calculate the profitability index for each project. b...

Q: Halcyon Lines is considering the purchase of a new bulk carrier

Halcyon Lines is considering the purchase of a new bulk carrier for $8 million. The forecasted revenues are $5 million a year and operating costs are $4 million. A major refit costing $2 million will...

Q: Borgia Pharmaceuticals has $1 million allocated for capital expenditures. Which

Borgia Pharmaceuticals has $1 million allocated for capital expenditures. Which of the following projects should the company accept to stay within the $1 million budget? How much does the budget limit...

Q: Some people believe firmly, even passionately, that ranking projects on

Some people believe firmly, even passionately, that ranking projects on IRR is OK if each project’s cash flows can be reinvested at the project’s IRR. They also say that the NPV rule “assumes that cas...

Q: Your firm’s geologists have discovered a small oil field in New York’s

Your firm’s geologists have discovered a small oil field in New York’s Westchester County. The field is forecasted to produce a cash flow of C1 = $2 million in the first year. You estimate that you co...

Q: Look again at the financial forecasts for Growth-Tech given in

Look again at the financial forecasts for Growth-Tech given in Table 4.4. This time assume you know that the opportunity cost of capital is r = .12 (discard the .09...

Q: Machines A and B are mutually exclusive and are expected to produce

Machines A and B are mutually exclusive and are expected to produce the following real cash flows: The real opportunity cost of capital is 10%. a. Calculate the NPV of each machine. b. Calculate the e...

Q: Consider the following two mutually exclusive projects: / a

Consider the following two mutually exclusive projects: a. Calculate the NPV of each project for discount rates of 0%, 10%, and 20%. Plot these on a graph with NPV on the vertical axis and disco...

Q: A widget manufacturer currently produces 200,000 units a year.

A widget manufacturer currently produces 200,000 units a year. It buys widget lids from an outside supplier at a price of $2 a lid. The plant manager believes that it would be cheaper to make these li...

Q: Mr. Cyrus Clops, the president of Giant Enterprises, has

Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two possible investments: The opportunity cost of capital is 9%. Mr. Clops is tempted to take B, which has the higher...

Q: What is the payback period on each of the following projects?

What is the payback period on each of the following projects? Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? c. If you use a cutoff per...

Q: F&H Corp. continues to invest heavily in a declining

F&H Corp. continues to invest heavily in a declining industry. Here is an excerpt from a recent speech by F&H’s CFO: We at F&H have of course noted the complaints of a few spineless investors and unin...

Q: Ms. T. Potts, the treasurer of Ideal China,

Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $400,000. Of this sum, $50,000 is described by the supplier as an installation cost. Ms. Potts do...

Q: Which of the following statements are true? The opportunity cost

Which of the following statements are true? The opportunity cost of capital: a. Equals the interest rate at which the company can borrow. b. Depends on the risk of the cash flows to be valued. c....

Q: A factory costs $800,000. You reckon that it

A factory costs $800,000. You reckon that it will produce an inflow after operating costs of $170,000 a year for 10 years. If the opportunity cost of capital is 14%, what is the net present value of t...

Q: Whispering Pines, Inc., is all-equity-financed.

Whispering Pines, Inc., is all-equity-financed. The expected rate of return on the company’s shares is 12%. a. What is the opportunity cost of capital for an average-risk Whispering Pines investment?...

Q: Consider a project lasting one year only. The initial outlay is

Consider a project lasting one year only. The initial outlay is $1,000 and the expected inflow is $1,200. The opportunity cost of capital is r = .20. The borrowing rate is rD = .10, and the tax shield...

Q: Suppose Federated Junkyards decides to move to a more conservative debt policy

Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later its debt ratio is down to 15% (D/V = .15). The interest rate has dropped to 8.6%. Recalculate Federated’s W...

Q: Digital Organics (DO) has the opportunity to invest $1

Digital Organics (DO) has the opportunity to invest $1 million now (t = 0) and expects after-tax returns of $600,000 in t = 1 and $700,000 in t = 2. The project will last for two years only. The appro...

Q: Consider another perpetual project like the crusher described in Section 19-

Consider another perpetual project like the crusher described in Section 19-1. Its initial investment is $1,000,000, and the expected cash inflow is $95,000 a year in perpetuity. The opportunity cost...

Q: Consider a project to produce solar water heaters. It requires a

Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.75 million per year for 10 years. The opportunity cost of capital i...

Q: In footnote 15 we referred to the Miles–Ezzell discount rate

In footnote 15 we referred to the Miles–Ezzell discount rate formula, which assumes that debt is not rebalanced continuously, but at one-year intervals. Derive this formula. Then use it to unlever San...

Q: You are asked to value a large building in northern New Jersey

You are asked to value a large building in northern New Jersey. The valuation is needed for a railroad bankruptcy settlement. Here are the facts: a. The settlement requires that the building’s value e...

Q: Modify Table 19.1 on the assumption that competition eliminates any

Modify Table 19.1 on the assumption that competition eliminates any opportunities to earn more than WACC on new investment after year 7 (PVGO = 0). How does the valuation of Rio change? Table 19.6 is...

Q: Consider the following project:
The internal rate

Consider the following project:
The internal rate of return is 20%. The NPV, assuming a 20% opportunity cost of capital, is exactly zero. Calculate the expected economic income and economic depreci...

Q: Imagine that Google’s stock price will either rise by 33.3

Imagine that Google’s stock price will either rise by 33.3% or fall by 25% over the next six months (see Section 21-1). Recalculate the value of the call option (exercise price = $530) using (a) the...

Q: Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc

Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. Velcro Saddles estimates th...

Q: Pat and Kris are roommates. They spend most of their time

Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to brew a...

Q: You win $100 in a basketball pool. You have a

You win $100 in a basketball pool. You have a choice between spending the money now and putting it away for a year in a bank account that pays 5 percent interest. What is the opportunity cost of spend...

Q: Suppose that there are 10 million workers in Canada and that each

Suppose that there are 10 million workers in Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year. a. What is the opportunity cost of producing a car in Can...

Q: What is the opportunity cost of investing in capital? Do you

What is the opportunity cost of investing in capital? Do you think a country can overinvest in capital? What is the opportunity cost of investing in human capital? Do you think a country can overinves...

Q: What items would you include to figure out the opportunity cost of

What items would you include to figure out the opportunity cost of a vacation to Disney World?

Q: American and Japanese workers can each produce 4 cars a year.

American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simpl...

Q: Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour

Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour. His friend Friday can gather 30 coconuts or catch 2 fish per hour. What is Crusoe’s opportunity cost of catching 1 fish? What is Friday...

Q: Maria can read 20 pages of economics in an hour. She

Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in an hour. She spends 5 hours per day studying. a. Draw Maria’s production possibilities frontier for reading...

Q: Your opportunity cost of going to a movie is a.

Your opportunity cost of going to a movie is a. the price of the ticket. b. the price of the ticket plus the cost of any soda and popcorn you buy at the theater. c. the total cash expenditure needed t...

Q: Suppose the U.S. president is attempting to decide whether

Suppose the U.S. president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. Imagine that you are the president’s economic advisor...

Q: The following table shows the hourly output per worker for Greece and

The following table shows the hourly output per worker for Greece and Italy measured as quarts of olive oil and pounds of pasta. Calculate the opportunity cost of producing olive oil and pasta in bo...

Q: Suppose that your college decides to give away 1,000 tickets

Suppose that your college decides to give away 1,000 tickets to the football game against your school’s biggest rival. The athletic department elects to distribute the tickets by giving them away to t...

Q: In addition to making cars, Tesla planned to open a new

In addition to making cars, Tesla planned to open a new factory in Nevada in 2016 to make batteries, including home storage battery packs. What is the opportunity cost to Tesla of investing in a batte...

Q: An economist remarks that “the cost of consuming a book is

An economist remarks that “the cost of consuming a book is the combination of the retail price and the opportunity cost of the time spent reading.” Isn’t the cost of consuming a book just the price yo...

Q: How can we measure the opportunity cost of leisure? What are

How can we measure the opportunity cost of leisure? What are the substitution effect and the income effect resulting from a wage change? Why is the supply curve of labor usually upward sloping?

Q: What does an increasing marginal opportunity cost mean? What are the

What does an increasing marginal opportunity cost mean? What are the implications of this idea for the shape of the production possibilities frontier?

Q: An article on espn.com about declining attendance at college football

An article on espn.com about declining attendance at college football games noted that schools in the central time zone had particular problems with attendance at games that started at 11 a.m. The ath...

Q: What is the opportunity cost of having excessive amounts of liquid funds

What is the opportunity cost of having excessive amounts of liquid funds?

Q: Julia (from problem 1) is considering trading in her car

Julia (from problem 1) is considering trading in her car for a new one. Her new car payment will be $325 per month, and her insurance cost will increase by $60 per month. Julia determines that her oth...

Q: Transfer prices should be set at a. marginal cost of

Transfer prices should be set at a. marginal cost of the selling division plus a reasonable profit amount. b. marginal cost of the selling division unless it is evaluated as a profit center. c. the op...

Q: After graduating from college, Jim had three choices, listed in

After graduating from college, Jim had three choices, listed in order of preference: (1) Move to Florida from Philadelphia, (2) work in a car dealership in Philadelphia, or (3) play soccer for a minor...

Q: When a firm ignores the opportunity cost of capital when making investment

When a firm ignores the opportunity cost of capital when making investment or shutdown decisions, this is a case of a. Fixed-cost fallacy b. Sunk-cost fallacy c. Hidden-cost fallacy d. None of the...

Q: You won a free ticket to see a Bruce Springsteen concert (

You won a free ticket to see a Bruce Springsteen concert (assume the ticket has no resale value). U2 has a concert the same night, and this represents your next-best alternative activity. Tickets to t...

Q: What is an opportunity cost that is relevant in a make-

What is an opportunity cost that is relevant in a make-or-buy decision?

Q: News Technology, Inc., manufactures computerized laser printing equipment used by

News Technology, Inc., manufactures computerized laser printing equipment used by newspaper publishers throughout North America. In recent years, the company’s market share has been...

Q: The Boyd Corporation has annual credit sales of $1.6

The Boyd Corporation has annual credit sales of $1.6 million. Current expenses for the collection department are $35,000, bad-debt losses are 1.5%, and the days sales outstanding is 30 days. The firm...

Q: Holmes Company produces wooden playhouses. When a customer orders a playhouse

Holmes Company produces wooden playhouses. When a customer orders a playhouse, it is delivered in pieces with detailed instructions on how to it together. Some customers prefer that Holmes put the pla...

Q: Parrish Plumbing provides plumbing services to residential customers from Monday through Friday

Parrish Plumbing provides plumbing services to residential customers from Monday through Friday. Ken Parrish, the owner, believes that it is important for his employees to have Saturday and Sunday off...

Q: Zachary made plans to visit a friend in New York during the

Zachary made plans to visit a friend in New York during the Memorial Day weekend. However, before the trip, his employer asked him if he would work overtime for 16 hours at $35 per hour during the wee...

Q: Fleet Valley Shoes produces two models: the Nx100 (a shoe

Fleet Valley Shoes produces two models: the Nx100 (a shoe aimed at competitive runners) and the Mx100 (a shoe aimed at fitness buffs). Sales and costs for the most recent year are indicated: Required...

Q: Why is the real interest rate the opportunity cost of loanable funds

Why is the real interest rate the opportunity cost of loanable funds?

Q: The Leviathan Steel Company has a coal-mining subsidiary in West

The Leviathan Steel Company has a coal-mining subsidiary in West Virginia. A substantial amount of the coal produced by the subsidiary is used by Leviathan’s steel foundries located in Pennsylvania....

Q: Montana Woolen Products has two divisions: a Fabric division that manufactures

Montana Woolen Products has two divisions: a Fabric division that manufactures woolen fabrics and a Clothing division that manufactures woolen dresses, coats, shirts, and accessories. All fabric used...

Q: Midwestern Sod produces two products, fescue grass and Bermuda grass:

Midwestern Sod produces two products, fescue grass and Bermuda grass: The company has 130,000 square yards of growing space available. In the past year, the company dedicated 65,000 square yards to f...

Q: Consider the information in Exercise 7-8 and identify the following

Consider the information in Exercise 7-8 and identify the following statements as true or false. a. Supervisory salary is an avoidable cost if the company decides to buy the valves. b. Depreciation o...

Q: Binder Manufacturing produces small electric motors used by appliance manufacturers. In

Binder Manufacturing produces small electric motors used by appliance manufacturers. In the past year, the company has experienced severe excess capacity due to competition from a foreign company that...

Q: Brennen produces a mint syrup used by gum and candy companies.

Brennen produces a mint syrup used by gum and candy companies. Recently, the company has had excess capacity due to a foreign supplier entering its market. Brennen is currently bidding on a potential...

Q: Auburn Banking and Loan Company has a graphic design department that designs

Auburn Banking and Loan Company has a graphic design department that designs loan forms and other documents used by the company’s two subsidiaries, Auburn Personal Banking and Auburn Business Banking....

Q: The Russian government spent $6.7 billion on Olympic facilities

The Russian government spent $6.7 billion on Olympic facilities and $16.7 billion upgrading Sochi area infrastructure. Sponsors spent $27.6 billion on hotels and facilities hoping to turn Sochi into a...

Q: The night before an economics test, you decide to go to

The night before an economics test, you decide to go to the movies instead of staying home and working your MyEconLab Study Plan. You get 50 percent on your test compared with the 70 percent that you...

Q: Kim can produce 40 pies or 400 cakes an hour. Liam

Kim can produce 40 pies or 400 cakes an hour. Liam can produce 100 pies or 200 cakes an hour. a. Calculate Kim’s opportunity cost of a pie and Liam’s opportunity cost of a pie. b. If each spends 30 mi...

Q: When Costco opened a gas bar just off Highway 401, the

When Costco opened a gas bar just off Highway 401, the neighbourhood was swamped with cars as drivers lined up to get the discount of 10 cents a litre. a. What is the opportunity cost of a litre of ga...

Q: Brazil produces ethanol from sugar, and the land used to grow

Brazil produces ethanol from sugar, and the land used to grow sugar can be used to grow food crops. The table sets out Brazil’s production possibilities for ethanol and food crops:...

Q: Brazil produces ethanol from sugar, and the land used to grow

Brazil produces ethanol from sugar, and the land used to grow sugar can be used to grow food crops. The table sets out Brazil’s production possibilities for ethanol and food crops:...

Q: A farm grows wheat and produces pork. The marginal cost of

A farm grows wheat and produces pork. The marginal cost of producing each of these products increases as more of it is produced. a. Make a graph that illustrates the farm’s PPF. b. The farm adopts a n...

Q: In an hour, Sue can produce 40 caps or 4 jackets

In an hour, Sue can produce 40 caps or 4 jackets and Tessa can produce 80 caps or 4 jackets. a. Calculate Sue’s opportunity cost of producing a cap. b. Calculate Tessa’s opportunity cost of producing...

Q: Suppose that Yucatan’s production possibilities are: / a

Suppose that Yucatan’s production possibilities are: a. Draw a graph of Yucatan’s PPF and explain how your graph illustrates a tradeoff. b. If Yucatan produces 150...

Q: Suppose that Yucatan’s production possibilities are: / What

Suppose that Yucatan’s production possibilities are: What feature of a PPF illustrates increasing opportunity cost? Explain why Yucatan’s opportunity cost does or...

Q: In Problem 11, what is the marginal cost of 1 kilogram

In Problem 11, what is the marginal cost of 1 kilogram of food in Yucatan when the quantity produced is 150 kilograms per day? What is special about the marginal cost of food in Yucatan? Problem 11:...

Q: Answer the following questions. a. How does the discovery

Answer the following questions. a. How does the discovery of new oil and gas reserves change Canada’s PPF? b. How do technological advances in the production of other goods and services change Canada’...

Q: Why is opportunity cost a ratio?

Why is opportunity cost a ratio?

Q: Why does the PPF bow outward and what does that imply about

Why does the PPF bow outward and what does that imply about the relationship between opportunity cost and the quantity produced?

Q: What is the opportunity cost of economic growth?

What is the opportunity cost of economic growth?

Q: The money price of a textbook is $90 and the money

The money price of a textbook is $90 and the money price of the Wii game Super Mario Galaxy is $45. a. What is the opportunity cost of a textbook in terms of the Wii game? b. What is the relative pric...

Q: How does opportunity cost enter into the make or buy decision?

How does opportunity cost enter into the make or buy decision?

Q: The Ewert Exploration Company is considering two mutually exclusive plans for extracting

The Ewert Exploration Company is considering two mutually exclusive plans for extracting oil on property for which it has mineral rights. Both plans call for the expenditure of $10 million to drill de...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Assume that you are about to graduate from your university and are

Assume that you are about to graduate from your university and are deciding whether to apply for graduate school or enter the job market. To help make the decision, you have gathered the following dat...

Q: Becky Shelton, a teacher at Kemp Middle School, is in

Becky Shelton, a teacher at Kemp Middle School, is in charge of ordering the T-shirts to be sold for the school’s annual fund-raising project. The T-shirts are printed with a special Kemp School logo....

Q: Indicate whether each of the following costs would be considered an ordering

Indicate whether each of the following costs would be considered an ordering cost (O), a carrying cost (C), or a cost of not carrying (N) inventory. For any costs that do not fit these categories, ind...

Q: Warner Corporation purchased a machine 7 years ago for $319,

Warner Corporation purchased a machine 7 years ago for $319,000 when it launched product P50. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new...

Q: Specific Electric Co. asks you to implement a pay-for

Specific Electric Co. asks you to implement a pay-for-performance incentive contract for its new CEO and four EVPs on the Executive Committee. The five managers can either work really hard with 70 hou...

Q: Best Trim, a manufacturer of lawn mowers, predicts that it

Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a pri...

Q: The Wild Orchid Corporation is working at full production capacity producing 13

The Wild Orchid Corporation is working at full production capacity producing 13,000 units of a unique product, Everlast. Manufacturing cost per unit for Everlast is: Direct materials………………………………….$10...

Q: Rugged Outfitters purchases one model of mountain bike at a wholesale cost

Rugged Outfitters purchases one model of mountain bike at a wholesale cost of $520 per unit and resells it to end consumers. The annual demand for the company’s product is 49,000 units. Ordering costs...

Q: Couture Jeans orders high-quality denim fabric from two different suppliers

Couture Jeans orders high-quality denim fabric from two different suppliers: Designer Fabrics and Cannon Cotton. Couture would like to use only one of the suppliers in the future. Due to variations in...

Q: Osborn, Inc., produces cell phone equipment. Amanda Westerly,

Osborn, Inc., produces cell phone equipment. Amanda Westerly, Osborn’s president, implemented a quality-improvement program that has now been in operation for 2 years. The cost repor...

Q: Because resources for social programs and public-sector investment projects come

Because resources for social programs and public-sector investment projects come from private-sector consumption and/or investment, economists typically advocate the use of a social rate of discount t...

Q: Tex-Mex, Inc., is a rapidly growing chain of

Tex-Mex, Inc., is a rapidly growing chain of Mexican food restaurants. The company has a limited amount of capital for expansion and must carefully weigh available alternatives. Currently, the company...

Q: Assume that two years ago, you purchased a new Jeep Wrangler

Assume that two years ago, you purchased a new Jeep Wrangler SE 4WD with a soft top for $16,500 using five-year interest-free financing. Today, the remaining loan balance is $9,900 and your Jeep has a...

Q: Traditional measures of firm productivity tend to focus on profit margins,

Traditional measures of firm productivity tend to focus on profit margins, the rate of return on stockholder’s equity, or related measures like total asset turnover, inventory turnover, or receivables...

Q: The net present value (NPV), profitability index (PI),

The net present value (NPV), profitability index (PI), and internal rate of return (IRR) methods are often employed in project valuation. Identify each of the following statements as true or false, an...

Q: Cunningham’s Drug Store, a medium-size drugstore located in Milwaukee

Cunningham’s Drug Store, a medium-size drugstore located in Milwaukee, Wisconsin, is owned and operated by Richard Cunningham. Cunningham’s sells pharmaceuticals, cosmetics, toiletries, magazines, and...

Q: Several companies have learned that a well-funded and comprehensive employee

Several companies have learned that a well-funded and comprehensive employee benefits package constitutes an important part of the compensation plan needed to attract and retain key personnel. An empl...

Q: Because of rapidly advancing technology, Chicago Publications Corporation is considering replacing

Because of rapidly advancing technology, Chicago Publications Corporation is considering replacing its existing typesetting machine with leased equipment. The old machine, purchased two years ago, has...

Q: Norman Dowd owns his own taxi, for which he bought a

Norman Dowd owns his own taxi, for which he bought a $10,000 permit to operate two years ago. Mr. Dowd earns $30,000 a year operating as an independent but has the opportunity to sell the taxi and per...

Q: Suppose Fastest Company is offered accounts payable terms of “2 percent

Suppose Fastest Company is offered accounts payable terms of “2 percent, 10 days, net 30 days” but its suppliers actually allow it to repay in 45 days. Estimate the annualized opportunity cost for not...

Q: We are examining a new project. We expect to sell 7

We are examining a new project. We expect to sell 7,000 units per year at $38 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $38 3 7,000...

Q: If a new home can be constructed for $175,000

If a new home can be constructed for $175,000, what is the opportunity cost of federal defense spending, measured in terms of private housing? (Assume a defense budget of $700 billion.)

Q: According to Table 1.1 (or Figure 1.1

According to Table 1.1 (or Figure 1.1), what is the opportunity cost of the fourth truck? Figure 1.1

Q: (a) Compute the opportunity cost in forgone tanks for each

(a) Compute the opportunity cost in forgone tanks for each additional truck produced: (b) As truck output increases, are opportunity costs (A) increasing, (B) decreasing, or (C) remaining constant?...

Q: According to Figure 1.2 (p. 9), what

According to Figure 1.2 (p. 9), what is the opportunity cost of North Korea moving from point P to point N (in terms of food output)?

Q: What is the opportunity cost (in civilian output) of a

What is the opportunity cost (in civilian output) of a defense buildup that raises military spending from 4.3 to 4.7 percent of a $15 trillion economy?

Q: Suppose either computers or televisions can be assembled with the following labor

Suppose either computers or televisions can be assembled with the following labor inputs: / (a) Draw the production possibilities curve for an economy with 54 units of labor. Label it P54. (b) Wha...

Q: If a person literally had “nothing else to do,”

If a person literally had “nothing else to do,” (a) What would be the opportunity cost of doing these problems? (b) What is the likelihood of that?

Q: Suppose there’s a relationship of the following sort between study time and

Suppose there’s a relationship of the following sort between study time and grades: / If you have only 20 hours per week to use for either study time or fun time, (a) Draw the (linear) production...

Q: In Figure 12.5, what is the opportunity cost of

In Figure 12.5, what is the opportunity cost of increasing government spending from g1 to g2 if (a) No external financing is available? (b) Complete external financing is available?

Q: The Economy Tomorrow section provides estimates of time spent in traffic delays

The Economy Tomorrow section provides estimates of time spent in traffic delays. If the average worker produces $90 of output per hour, what is the opportunity cost of (a) Current traffic delays?...

Q: Suppose a country can produce a maximum of 20,000 jumbo

Suppose a country can produce a maximum of 20,000 jumbo airliners or 2,000 aircraft carriers. (a) What is the opportunity cost of an aircraft carrier? (b) If another country offers to trade six pl...

Q: If it takes 24 farmworkers to harvest 1 ton of strawberries and

If it takes 24 farmworkers to harvest 1 ton of strawberries and 8 farmworkers to harvest 1 ton of wheat, what is the opportunity cost of 5 tons of strawberries?

Q: Alpha and Beta, two tiny islands off the east coast of

Alpha and Beta, two tiny islands off the east coast of Tricoli, produce pearls and pineapples. The following production possibilities schedules describe their potential output in tons per year: (a)...

Q: How many people are employed by your local or state government?

How many people are employed by your local or state government? What do they produce? What is the opportunity cost of that output?

Q: Answer the following multiple-choice questions: a. A

Answer the following multiple-choice questions: a. A company’s current ratio is 2.2 to 1 and quick (acid-test) ratio is 1.0 to 1 at the beginning of the year. At the end of the year, the company has...

Q: For the ruler of a developing country, the opportunity cost of

For the ruler of a developing country, the opportunity cost of a choice to invest in universal education a) is the reduction in health care spending. b) does not exist because food is a necessity. c...

Q: Imagine that two countries, Richland and Poorland, can produce just

Imagine that two countries, Richland and Poorland, can produce just two goods, computers and coal. Assume that for a given amount of land and capital, the output of these two products requires the fol...

Q: Make a list of three things you did yesterday. What was

Make a list of three things you did yesterday. What was the opportunity cost of each?

Q: You are examining the viability of a capital investment in which your

You are examining the viability of a capital investment in which your firm is interested. The project will require an initial investment of $500,000 and the projected revenues are $400,000 a year for...

Q: Your company is considering producing a new product. You have a

Your company is considering producing a new product. You have a production facility that is currently used to only 50% of capacity, and you plan to use some of the excess capacity for the new product....

Q: You are an analyst for a sporting goods corporation that is considering

You are an analyst for a sporting goods corporation that is considering a new project that will take advantage of excess capacity in an existing plant. The plant has a capacity to produce 50,000 tenni...

Q: You own a rental building in the city and are interested in

You own a rental building in the city and are interested in replacing the heating system. You are faced with the following alternatives: a. A solar heating system, which will cost $12,000 to install a...

Q: You have just been approached by a magazine with an offer for

You have just been approached by a magazine with an offer for renewing your subscription. You can renew for one year at $20, two years for $36, or three years at $45. Assuming that you have an opportu...

Q: Southern Rail has just declared a dividend of $1. The

Southern Rail has just declared a dividend of $1. The average investor in Southern Rail faces an ordinary tax rate of 50%. Although the capital gains rate is also 50%, it is believed that the investor...

Q: 1.1. Consider an accounting firm with two accountants.

1.1. Consider an accounting firm with two accountants. a. Fill in the blanks in the following table. b. Quigley has a comparative advantage in __________, while Slokum has a comparative advantage in...

Q: 2.1. A car rental company currently has seven cars

2.1. A car rental company currently has seven cars in its fleet, and its total daily cost is $2,300. If the company added an 8th car, its daily cost would be $2,400, or $300 per car. Adding the 8th ca...

Q: 1.1. Consider Figure 2.1. Between points

1.1. Consider Figure 2.1. Between points c and d, the opportunity cost of __________ tons of wheat is __________ tons of steel. Figure 2.1: 1.2. Arrow up or down: An increase in the wage for high s...

Q: 2.1. Arrows up or down: An increase in

2.1. Arrows up or down: An increase in the wage the opportunity cost of leisure time, which tends to leisure time and labor time. 2.2. Arrows up or down: An increase in the wa...

Q: A.1. ____________ and ____________ are the two factors that

A.1. ____________ and ____________ are the two factors that determine how the stock of capital changes over time. A.2. Which of the following causes capital deepening to come to an end? a. The margi...

Q: 1.1. We measure the opportunity cost of holding money

1.1. We measure the opportunity cost of holding money with _________. 1.2. If interest rate decreases, investment spending _________ (increases/decreases) and money demand _________ (increases/decrea...

Q: 1.1. A country has a comparative advantage if it

1.1. A country has a comparative advantage if it has a lower _________ cost of producing a good. 1.2. The terms of trade is the rate at which two goods can be _________ for one another. 1.3. Suppose...

Q: 2.1. The short-run marginal cost curve is

2.1. The short-run marginal cost curve is shaped like the letter _________ and the short-run average cost curve is shaped like the letter _________. 2.2. The negatively sloped portion of the short-ru...

Q: 4.1. The average cost of electricity (increases/

4.1. The average cost of electricity (increases/ decreases) as the size of the wind turbine increases. 4.2. For information goods such as a music video distributed online, the cost of producing the fi...

Q: 1.1. The computation of economic cost is based on

1.1. The computation of economic cost is based on the principle of . 1.2. A firm’s implicit cost is defined as the cost of nonpurchased inputs, such as the entrepreneur’s and . 1.3. Eco...

Q: 2.1. Economic profit equals minus . 2.

2.1. Economic profit equals minus . 2.2. Economic cost equals cost plus cost. 2.3. For a perfectly competitive firm, marginal revenue equals , and...

Q: 5.1. The reservation price is the price at which

5.1. The reservation price is the price at which the consumer is about additional search, meaning that the of search equals the . 5.2. If a consumer knows that TV...

Q: Label each of the following statements as either true (“T”)

Label each of the following statements as either true (“T”) or false (“F”). ______ 1. Relevant costs are also known as unavoidable costs. ______ 2. Incremental costs are also known as differential cos...

Q: Signal mistakenly produced 1,000 defective cell phones. The phones

Signal mistakenly produced 1,000 defective cell phones. The phones cost $60 each to produce. A salvage company will buy the defective phones as they are for $30 each. It would cost Signal $80 per phon...

Q: The costs listed below relate to a variety of different decision situations

The costs listed below relate to a variety of different decision situations. Cost Decision 1. Unavoidable fixed overhead Eliminate an unprofitable segment 2. Di...

Q: Explain the term opportunity cost with respect to the cost of funds

Explain the term opportunity cost with respect to the cost of funds to the firm.

Q: New Wave Surfing Stuff Inc. is a manufacturer of surfboards and

New Wave Surfing Stuff Inc. is a manufacturer of surfboards and related gear that sells to exclusive surf shops located in several Atlantic and Pacific mainland coastal towns as well as several Hawaii...

Q: K. Johnson, Inc.’s managers want to evaluate the

K. Johnson, Inc.’s managers want to evaluate the firm’s prior-year performance in terms of its contribution to shareholder value. This past year, the firm earned an operating return on investment of 1...

Q: Drew Concrete uses Economic Value Added as a financial performance measure.

Drew Concrete uses Economic Value Added as a financial performance measure. Drew has $240 million in assets, and the firm has financed its assets with 37 percent equity and 63 percent debt with an i...

Q: Match the following terms with their definitions: /

Match the following terms with their definitions:

Q: LPT Inc. is an integrated oil company headquartered in Dallas,

LPT Inc. is an integrated oil company headquartered in Dallas, Texas. The company has three operating divisions: oil exploration and production (commonly referred to as E&P), pipelines, and refining....

Q: Penn Steelworks is a distributor of cold-rolled steel products to

Penn Steelworks is a distributor of cold-rolled steel products to the automobile industry. All of its sales are on a credit basis, net 30 days. Sales are evenly distributed over its 10 sales regions t...

Q: Peggy Pierce Designs Inc. is a vertically integrated, national manufacturer

Peggy Pierce Designs Inc. is a vertically integrated, national manufacturer and retailer of women’s clothing. Currently, the firm has no coordinated cash management system. A proposal, however, from t...

Q: Bradford Construction Supply Company is suffering from a prolonged decline in new

Bradford Construction Supply Company is suffering from a prolonged decline in new construction in its sales area. In an attempt to improve its cash position, the firm is considering changes in its acc...

Q: White Whale Corporation has an average daily cash balance of

White Whale Corporation has an average daily cash balance of $1,300. Total cash needed for the year is $43,000. The interest rate is 5 percent, and replenishing the cash costs $8 each time. What are t...

Q: Debit and Credit Bookkeepers needs a total of $16,000 in

Debit and Credit Bookkeepers needs a total of $16,000 in cash during the year for transactions and other purposes. Whenever cash runs low, it sells $1,500 in securities and transfers the cash in. The...

Q: The variance of the daily cash flows for the Pele

The variance of the daily cash flows for the Pele Bicycle Shop is $890,000. The opportunity cost to the firm of holding cash is 7 percent per year. What should the target cash level and the upper limi...

Q: Lawnox, a manufacturer of lawn mowers, predicts that it will

Lawnox, a manufacturer of lawn mowers, predicts that it will purchase 240,000 spark plugs next year. Lawnox estimates that 20,000 spark plugs will be required each month. A supplier quotes a price of...

Q: A number of terms are listed below: /

A number of terms are listed below: Required: Select the terms from the above list to complete the following sentences. A full absorption cost refers to all manufacturing costs including all MOH, wh...

Q: Wolverine Corporation is working at full production capacity producing 10,000

Wolverine Corporation is working at full production capacity producing 10,000 units of a unique product, Rosebo. Manufacturing costs per unit for Rosebo are as follows: Direct materials …………………………………...

Q: Online C is an online company that sells computers to individual consumers

Online C is an online company that sells computers to individual consumers. The annual demand for one model that will be shipped from the northeast distribution centre is estimated to be 500,000 compu...

Q: Define opportunity cost .

Define opportunity cost .

Q: A number of terms are listed below: /

A number of terms are listed below: Select the terms from the above list to complete the following sentences. The goal of ________________ is to provide capacity in a planned and orderly manner that...

Q: (Instructor-provided spreadsheet recommended.) A proposed government project in

(Instructor-provided spreadsheet recommended.) A proposed government project in a rural area with 100 unemployed persons would require the hiring of 20 workers. The project would offer wages of $12 pe...

Q: The environmental protection agency of a county would like to preserve a

The environmental protection agency of a county would like to preserve a piece of land as a wilderness area. The current owner has offered to lease the land to the county for 20 years in return for a...

Q: Imagine that the current owner of the land in the previous exercise

Imagine that the current owner of the land in the previous exercise was willing to sell the land for $2 million. Assuming this amount equaled the social opportunity cost of the land, calculate the net...

Q: (Instructor-provided spreadsheet recommended.) Happy Valley is the only

(Instructor-provided spreadsheet recommended.) Happy Valley is the only available camping area in Rural County. It is owned by the county, which allows free access to campers. Almost all visitors to H...

Q: How closely do government expenditures measure opportunity cost for each of the

How closely do government expenditures measure opportunity cost for each of the following program inputs? a. Time of jurors in a criminal justice program that requires more trials. b. Land to be us...

Q: What is the opportunity cost of using an existing asset? Give

What is the opportunity cost of using an existing asset? Give an example of the opportunity cost of using the excess capacity of a machine?

Q: You are starting a family pizza parlor and need to buy a

You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $9,000 and is expected to run for 6 years; Model B is more expensive...

Q: Predator LLC, a leveraged-buyout specialist, recently bought a

Predator LLC, a leveraged-buyout specialist, recently bought a company and wants to determine the optimal time to sell it. The partner in charge of this investment has estimated the after-tax cash flo...

Q: Bell Mountain Vineyards is considering updating its current manual accounting system with

Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the sy...

Q: You have a 2000 Nissan that is expected to run for another

You have a 2000 Nissan that is expected to run for another three years, but you are considering buying a new Hyundai before the Nissan wears out. You will donate the Nissan to Goodwill when you buy th...

Q: Anaconda Manufacturing Company currently own a mine that is known to contain

Anaconda Manufacturing Company currently own a mine that is known to contain a certain amount of gold. Since Anaconda does not have any gold-mining expertise, the company plans to sell the entire mine...

Q: You are thinking about delivering pizzas in your spare time. Since

You are thinking about delivering pizzas in your spare time. Since you must use your own car to deliver the pizzas, you will wear out your current car one year earlier, which is one year from today, t...

Q: You are the CFO of SlimBody, Inc., a retailer of

You are the CFO of SlimBody, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 2...

Q: Rocky Mountain Lumber, Inc., is considering purchasing a new wood

Rocky Mountain Lumber, Inc., is considering purchasing a new wood saw that costs $50,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to...

Q: Great Fit, Inc., is a company that manufactures clothing.

Great Fit, Inc., is a company that manufactures clothing. The company has a production line that produces women’s tops of regular sizes. The same machine could be used to produce petite sizes as well....

Q: Biotech Partners LLC has been farming a new strain of radioactive-

Biotech Partners LLC has been farming a new strain of radioactive-material-eating bacteria that the electrical utility industry can use to help dispose of its nuclear waste. Two opposing factors affec...

Q: ACME Manufacturing is considering replacing an existing production line with a new

ACME Manufacturing is considering replacing an existing production line with a new line that has a greater output capacity and operates with less labor than the existing line. The new line would cost...

Q: The accounting operating profit break-even point tells us the number

The accounting operating profit break-even point tells us the number of units that must be sold for a firm to break-even in a given year from an accounting operating profit perspective. What measure t...

Q: Managers of Central Embroidery have decided to purchase a new monogram machine

Managers of Central Embroidery have decided to purchase a new monogram machine and are considering two alternative machines. The first machine costs $100,000 and is expected to last five years. The se...

Q: You have inherited an apple orchard and want to sell it in

You have inherited an apple orchard and want to sell it in the next four years. An expert in apple orchard valuation has estimated the after-tax cash flow you would receive if you sold at the end of e...

Q: Sprigg Lane Manufacturing, Inc., needs to purchase a new central

Sprigg Lane Manufacturing, Inc., needs to purchase a new central air-conditioning system for a plant. There are two choices. The first system costs $50,000 and is expected to last 10 years, and the se...

Q: Belt Bottoms, Inc. is considering a five-year project

Belt Bottoms, Inc. is considering a five-year project with an initial investment of $20,000. What annual free cash flow (FCF) would be required for this project to have an NPV of $0 if the opportunit...

Q: Is it possible for a person to incur an opportunity cost without

Is it possible for a person to incur an opportunity cost without spending any money? Explain.

Q: There are 30 students in an Economics class. Is the opportunity

There are 30 students in an Economics class. Is the opportunity cost of attending the class the same for each of the 30 students? Why or why not.

Q: Pacific Traders has annual sales of $1,895,000

Pacific Traders has annual sales of $1,895,000. The firm’s financial manager has determined that using a lockbox will reduce collection time by 2.3 days. If the firm’s opportunity cost on savings is 5...

Q: Jennifer Electrical is evaluating whether a lockbox it is currently using is

Jennifer Electrical is evaluating whether a lockbox it is currently using is worth keeping. Management estimates that the lockbox reduces the mail float by 1.8 days and the processing by half a day. T...

Q: Hazel Corp. has just signed up for a lockbox. Management

Hazel Corp. has just signed up for a lockbox. Management expects the lockbox to reduce the mail float by 2.1 days. Hazel Corp.’s remittances average $37,000 a day, and the average check is $125. The b...

Q: What does a PPF that is bowed outward imply about the opportunity

What does a PPF that is bowed outward imply about the opportunity cost of production?

Q: Pinnacle Paper Products Inc. can produce books or rolls of paper

Pinnacle Paper Products Inc. can produce books or rolls of paper towels. Here is its PPF for the resources and technology it has available:
What is the opportunity cost of choosing to produce at p...

Q: Pinnacle Paper Products Inc. can produce books or rolls of paper

Pinnacle Paper Products Inc. can produce books or rolls of paper towels. Here is its PPF for the resources and technology it has available:
What is the opportunity cost of choosing to produce at p...

Q: Pinnacle Paper Products Inc. can produce books or rolls of paper

Pinnacle Paper Products Inc. can produce books or rolls of paper towels. Here is its PPF for the resources and technology it has available:
Explain how to determine whether the law of increasing o...

Q: Country A can produce either 10X and 0Y or 0x and 20Y

Country A can produce either 10X and 0Y or 0x and 20Y. Country B can produce either 30X and 0Y or 0X and 40Y. Identify the opportunity cost of producing each good for each country. Identify the compar...

Q: What role does opportunity cost play in the theory that birth-

What role does opportunity cost play in the theory that birth-rates are likely to be higher in some countries than others?

Q: Define opportunity cost and give an example of how opportunity costs might

Define opportunity cost and give an example of how opportunity costs might affect your financial decision making.

Q: Denise Green is currently renting an apartment for $725 per month

Denise Green is currently renting an apartment for $725 per month and paying $275 annually for renter’s insurance. She just found a small townhouse that she can buy for $185,000. She...

Q: Jason commenced with £135,000 cash. He acquired an

Jason commenced with £135,000 cash. He acquired an established shop on 1 January 20X1. He agreed to pay £130,000 for the fixed and current assets and the goodwill. The replac...

Q: A proposed government project in a rural area with 100 unemployed persons

A proposed government project in a rural area with 100 unemployed persons would require the hiring of 20 workers. The project would offer wages of $12 per hour. Imagine that the reservation wages of t...

Q: The environmental protection agency of a county would like to preserve a

The environmental protection agency of a county would like to preserve a piece of land as a wilderness area. The current owner has offered to lease the land to the county for 20 years in return for a...

Q: Imagine that the current owner of the land in the previous exercise

Imagine that the current owner of the land in the previous exercise was willing to sell the land for $2 million. Assuming this amount equaled the social opportunity cost of the land, calculate the net...

Q: (Instructor-provided spreadsheet recommended.) Happy Valley is the only

(Instructor-provided spreadsheet recommended.) Happy Valley is the only available camping area in Rural County. It is owned by the county, which allows free access to campers. Almost all visitors to H...

Q: Why can excess cash be an opportunity cost for a company?

Why can excess cash be an opportunity cost for a company?

Q: We are examining a new project. We expect to sell

We are examining a new project. We expect to sell 7,100 units per year at $56 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $56 × 7,100 = $397,600...

Q: The variance of the daily cash flows for the Pele

The variance of the daily cash flows for the Pele Bicycle Shop is $890,000. The opportunity cost to the firm of holding cash is 4.1 percent per year. What should the target cash level and the upper li...

Q: White Whale Corporation has an average daily cash balance of

White Whale Corporation has an average daily cash balance of $1,700. Total cash needed for the year is $64,000. The interest rate is 5 percent, and replenishing the cash costs $8 each time. What are t...

Q: Debit and Credit Bookkeepers needs a total of $21,000 in

Debit and Credit Bookkeepers needs a total of $21,000 in cash during the year for transactions and other purposes. Whenever cash runs low, it sells $1,500 in securities and transfers in the cash. The...

Q: We are examining a new project. We expect to sell

We are examining a new project. We expect to sell 7,100 units per year at $56 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $56 × 7,100 = $397,600...

Q: The variance of the daily cash flows for the Pele

The variance of the daily cash flows for the Pele Bicycle Shop is $890,000. The opportunity cost to the firm of holding cash is 4.1 percent per year. What should the target cash level and the upper li...

Q: White Whale Corporation has an average daily cash balance of

White Whale Corporation has an average daily cash balance of $1,700. Total cash needed for the year is $64,000. The interest rate is 5 percent, and replenishing the cash costs $8 each time. What are t...

Q: Debit and Credit Bookkeepers needs a total of $21,000 in

Debit and Credit Bookkeepers needs a total of $21,000 in cash during the year for transactions and other purposes. Whenever cash runs low, it sells $1,500 in securities and transfers in the cash. The...

Q: Ms. French is a successful attorney in the 37 percent marginal

Ms. French is a successful attorney in the 37 percent marginal tax bracket. During the past several years, she provided legal services to her great-uncle, who is 78 years old and in failing health. Al...

Q: Define the term opportunity cost of time.

Define the term opportunity cost of time.

Q: What is to be gained by incorporating both theory and practical tools

What is to be gained by incorporating both theory and practical tools, such as opportunity cost of time, into household planning?

Q: Answer the following questions on the basis of the table shown here

Answer the following questions on the basis of the table shown here. QB is type B labor, and VMPBx and VMPBy are the industry values of the marginal products of this labor in producing x and y, the on...

Q: Les Moore retired as president of Goodman Snack Foods Company but is

Les Moore retired as president of Goodman Snack Foods Company but is currently on a consulting contract for $35,000 per year for the next 10 years. a. If Mr. Moore’s opportunity cost (potential return...

Q: Home has 1,200 units of labor available. It can

Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. a. Graph Home’s producti...

Q: Go back to the numerical example with no factor substitution that leads

Go back to the numerical example with no factor substitution that leads to the production possibility frontier in Figure 5-1. Data from Figure 5-1: a. What is the range for the relative price of cl...

Q: The discussion of low-investment country Alpha versus high investment country

The discussion of low-investment country Alpha versus high investment country Beta explained that sacrificing production of consumer goods for an increase in capital goods output can result in economi...

Q: What is the opportunity cost of attending college? Answer

What is the opportunity cost of attending college?

Q: What is the opportunity cost of government spending on servicing the interest

What is the opportunity cost of government spending on servicing the interest on the debt?

Q: The following is a set of hypothetical production possibilities for a nation

The following is a set of hypothetical production possibilities for a nation. a. Plot these production possibilities data. What is the opportunity cost of the first 2,000 automobiles produced? Betwe...

Q: Shirley has been offered two perpetuities: Grow and Shrink. Grow

Shirley has been offered two perpetuities: Grow and Shrink. Grow promises her $100 in one year and an annual cash flow that will increase by 4 percent per year forever. Shrink, in contrast, promises h...

Q: Xiang wishes to have $1 million in 25 years. He

Xiang wishes to have $1 million in 25 years. He cannot afford to make large deposits at the moment; however, he believes that he will be able to increase his deposits by 4 percent per year for the nex...

Q: Imperial Systems has $1 million available for capital investments during the

Imperial Systems has $1 million available for capital investments during the current year. A list of possible investment projects, together with their net investments and net present values, is provid...

Q: How is the opportunity cost concept used in the capital budgeting process

How is the opportunity cost concept used in the capital budgeting process?

Q: Two banks, First Fidelity Bank and First Union Bank, have

Two banks, First Fidelity Bank and First Union Bank, have offered to process Zack’s retail charge card payments. First Fidelity will process the payments for a fee of $0.15 per payment with no compens...

Q: Axia Inc. manufactures two electronic products, widgets and gadgets,

Axia Inc. manufactures two electronic products, widgets and gadgets, and has a capacity of 1,000 machine hours. Prices and costs for each product are as follows: * Variable manufacturing overhead co...

Q: John Bourcier operates a small machine shop. He manufactures one standard

John Bourcier operates a small machine shop. He manufactures one standard product that is also available from many other similar businesses, and he also manufactures deluxe products to order. His acco...

Q: Phil Clark Jr., president of Waterways, was very pleased with

Phil Clark Jr., president of Waterways, was very pleased with how adopting a CVP approach to reporting operating income was helping management to make good business decisions with respect to planning,...

Q: Yuki (age 45 at year-end) has been contributing

Yuki (age 45 at year-end) has been contributing to a traditional IRA for years (all deductible contributions) and her IRA is now worth $50,000. She is trying to decide whether she should roll over her...

Q: Define each of the following terms: a. PV;

Define each of the following terms: a. PV; I; INT; FVN; PVAN; FVAN; PMT; M; INOM b. Opportunity cost rate c. Annuity; lump-sum payment; cash flow; uneven cash flow stream d. Ordinary (or deferred) ann...

Q: What is an opportunity cost rate? How is this rate used

What is an opportunity cost rate? How is this rate used in discounted cash flow analysis, and where is it shown on a timeline? Is the opportunity rate a single number that is used to evaluate all pote...

Q: Looking back at Regardless of Your Major: Understanding the Role of

Looking back at Regardless of Your Major: Understanding the Role of the Cost of Capital on page 446, what should be the opportunity cost of funds in valuing the cash flows from the ownership of a McDo...

Q: In the chapter introduction, we discussed the Starbucks (SBUX)

In the chapter introduction, we discussed the Starbucks (SBUX) acquisition of Seattle’s Best Coffee Company in 2003. Discuss the relevance of Seattle’s Best’s WACC as the opportunity cost of funds tha...

Q: Lawn World, a manufacturer of lawn mowers, predicts that it

Lawn World, a manufacturer of lawn mowers, predicts that it will purchase 264,000 spark plugs next year. Lawn World estimates that 22,000 spark plugs will be required each month. A supplier quotes a p...

Q: Costen, Inc., produces cell phone equipment. Jessica Tolmy,

Costen, Inc., produces cell phone equipment. Jessica Tolmy, Costen’s president, decided to devote more resources to the improvement of product quality after learning that her company...

Q: Dream Rider produces car seats for children from newborn to two years

Dream Rider produces car seats for children from newborn to two years old. The company is worried because one of its competitors has recently come under public scrutiny because of product failure. His...

Q: The Wild Boar Corporation is working at full production capacity producing 13

The Wild Boar Corporation is working at full production capacity producing 13,000 units of a unique product, Rosebo. Manufacturing cost per unit for Rosebo is as follows: Manufacturing overhead cost...

Q: Computers 4 U purchases one model of computer at a wholesale cost

Computers 4 U purchases one model of computer at a wholesale cost of $200 per unit and resells it to end consumers. The annual demand for the company’s product is 500,000 units. Ordering costs are $80...

Q: Calculate the initial cash flows (CF0) for the following projects

Calculate the initial cash flows (CF0) for the following projects. Which project has a larger CF0? a. Project A: equipment purchase price = $195,000; installation cost = $4,500; extra working capital...

Q: Find the present value of the streams of cash flows shown in

Find the present value of the streams of cash flows shown in the following table. Assume that the opportunity cost is 12%.

Q: Herr Mining Company plans to open a new coal mine. Developing

Herr Mining Company plans to open a new coal mine. Developing the mine will cost $10 million right away, but cash flows of $4 million will arrive starting in 1 year and then continuing for the next 4...

Q: Answer each of the following questions. a. How much

Answer each of the following questions. a. How much money would you have to invest today to accumulate $6,000 after 6 years if the rate of return on your investment is 12%? b. What is the present valu...

Q: Jim Nance has been offered an investment that will pay him $

Jim Nance has been offered an investment that will pay him $500 three years from today. a. If his opportunity cost is 7% compounded annually, what value should he place on this opportunity today? b. W...

Q: In exchange for a $23,000 payment today, a

In exchange for a $23,000 payment today, a well-known company will allow you to choose one of the alternatives shown in the following table. Your opportunity cost is 9%. a. Find the value today of e...

Q: Jenny Jenks has researched the financial pros and cons of entering into

Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and books for the master’s program will have an up-front cost of $50,0...

Q: Gen-X Industries is developing the incremental cash flows associated with

Gen-X Industries is developing the incremental cash flows associated with the proposed replacement of an existing machine tool with a new, technologically advanced one. Given the following costs relat...

Q: Richard and Linda Butler decide that it is time to purchase a

Richard and Linda Butler decide that it is time to purchase a high-definition (HD) television because the technology has improved and prices have fallen over the past 3 years. From their research, the...

Q: You are interested in an investment project that costs $40,

You are interested in an investment project that costs $40,000 initially. The investment has a 5-year horizon and promises future end of-year cash inflows of $12,000, $12,500, $11,500, $9,000, and $8,...

Q: Simon Corporation has daily cash receipts of $65,000.

Simon Corporation has daily cash receipts of $65,000. A recent analysis of its collections indicated that customers’ payments were in the mail an average of 3.0 days. Once received, the payments are p...

Q: Tara’s Textiles currently has credit sales of $360 million per year

Tara’s Textiles currently has credit sales of $360 million per year and an average collection period of 60 days. Assume that the price of Tara’s products is $60 per unit and that the variable costs ar...

Q: A company receives an average of $100,000 in cheques

A company receives an average of $100,000 in cheques per day from its customers. It takes the company an average of five days to receive and deposit these cheques. The company is considering a lockbox...

Q: In the summer of 2008, at Heathrow Airport in London,

In the summer of 2008, at Heathrow Airport in London, Best of the best (BB), a private company, offered a lottery to win a Ferrari or 90,000 British pounds, equivalent at the time to about $180,000. B...

Q: A bicycle manufacturer currently produces 300,000 units a year and

A bicycle manufacturer currently produces 300,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2 a chain. The plant man...

Q: The management of Southern Express Corporation is considering investing 10% of

The management of Southern Express Corporation is considering investing 10% of all future earnings in growth. The company has a single growth opportunity that it can take either now or in one period....

Q: The general manager of the nationalized postal service of a small country

The general manager of the nationalized postal service of a small country, Zedland, wishes to introduce a new service. This service would offer same-day delivery of letters and parcels posted before 1...

Q: Relate the idea of cost of capital to the opportunity cost concept

Relate the idea of cost of capital to the opportunity cost concept. Is the cost of capital the opportunity cost of project money?

Q: What's an opportunity cost interest rate?

What's an opportunity cost interest rate?

Q: A neighbour asked for your help preparing a grant for a not

A neighbour asked for your help preparing a grant for a not-for-profit after-school art program that would benefit primary school children in the neighbourhood. He wants to charge low fees for most ch...

Q: Last month you lent a work colleague $5000 to cover some

Last month you lent a work colleague $5000 to cover some overdue bills. He agreed to pay you in 1 month with interest at 2% for the month, thus owing you $5100. Today, when the repayment is due, he as...

Q: George Jackson operates a small machine shop. He manufactures one standard

George Jackson operates a small machine shop. He manufactures one standard product available from many other similar businesses, and he also manufactures custom-ordered products. His accountant prepar...

Q: 1. Waiting is often seen as psychological punishment because the consumer

1. Waiting is often seen as psychological punishment because the consumer is aware of the opportunity cost of waiting time and the resulting loss of earnings. 2. The net result of waiting, apart from...

Q: 1. The strategy of segmenting demand is feasible only when:

1. The strategy of segmenting demand is feasible only when: a. Demand is not from a homogeneous source. b. Demand is cyclic and predictable. c. Arrivals for service are random. d. Making appointments...

Q: How may an opportunity cost be relevant in an outsourcing decision?

How may an opportunity cost be relevant in an outsourcing decision?

Q: Gotrack Company produces compasses for cross-country skiing. The production

Gotrack Company produces compasses for cross-country skiing. The production capacity is 45 000 compasses and the company is currently operating at 85 per cent capacity. Variable manufacturing costs ar...

Q: Five independent projects were ranked in decreasing order by two measures—

Five independent projects were ranked in decreasing order by two measures—rate of return (ROR) and present worth (PW)—to determine which should be funded with the t...

Q: State how the opportunity cost sets the MARR when, because of

State how the opportunity cost sets the MARR when, because of limited capital, only one alternative can be selected from two or more.

Q: Steve Carter is CFO of a small temporary labor supplier. Steve

Steve Carter is CFO of a small temporary labor supplier. Steve is setting up an account to hold cash that the company needs to pay its monthly bills. Cash needs average $10,000 each month with a stand...

Q: You are the owner of a business, like the Millers of

You are the owner of a business, like the Millers of the Bold City Brewery. The end of the year is approaching. You’re going to meet with your CPA next week to do some end-of-the-year tax planning. In...

Q: Firm Z is considering implementing a long-term tax strategy to

Firm Z is considering implementing a long-term tax strategy to accelerate the deduction of certain business expenses. The strategy has an opportunity cost because it decreases before-tax cash flows, b...

Q: What is the opportunity cost to the United States of withdrawing from

What is the opportunity cost to the United States of withdrawing from the TPP?

Q: We are examining a new project. We expect to sell 7

We are examining a new project. We expect to sell 7,400 units per year at $59 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $59 × 7,400 = $436,600...

Q: In Problem 14, suppose you think it is likely that expected

In Problem 14, suppose you think it is likely that expected sales will be revised upward to 11,400 units if the first year is a success and revised downward to 3,500 units if the first year is not a s...

Q: In Problem 15, suppose the scale of the project can be

In Problem 15, suppose the scale of the project can be doubled in one year in the sense that twice as many units can be produced and sold. Naturally, expansion would be desirable only if the project i...

Q: Northeast Hospital’s Radiology Department is considering replacing an old inefficient X-

Northeast Hospital’s Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide highe...

Q: It is typically beneficial for companies to take advantage of early-

It is typically beneficial for companies to take advantage of early- payment discounts allowed on purchases made on credit. To see why this is the case, determine the effective rate of interest associ...

Q: Grant Industries, a manufacturer of electronic parts, has recently received

Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,000 units of one of its most popular products. Grant currently manufactures 4...

Q: You and your spouse have recently inherited money from a distant relative

You and your spouse have recently inherited money from a distant relative and are considering a number of investment opportunities, one of which would involve residential real estate. Specifically, yo...

Q: Mylar Corporation started as a single plant to produce its major components

Mylar Corporation started as a single plant to produce its major components and then assembled its main product into electric motors. Mylar later expanded by developing outside markets for some compon...

Q: The enter for Medicare and Medicaid Services (CMS) reimburses health

The enter for Medicare and Medicaid Services (CMS) reimburses health care facilities at a fixed rate for patients of a certain diagnosis-related group (DRG). The facility must also demonstrate an acce...

Q: Laser News Technology, Inc., manufactures computerized laser printing equipment used

Laser News Technology, Inc., manufactures computerized laser printing equipment used by newspaper publishers throughout North America. In recent years, the company’s market share has...

Q: Think about all of the choices you make on a day-

Think about all of the choices you make on a day-to-day basis: everything from driving versus riding a bike to school or deciding where to have lunch. Pick three decisions you have made today. Identif...

Q: Explain opportunity cost and list two opportunity costs of your decision to

Explain opportunity cost and list two opportunity costs of your decision to enroll in classes this semester.

Q: How are the concepts of full capacity and opportunity cost interrelated?

How are the concepts of full capacity and opportunity cost interrelated?

Q: Consider another perpetual project like the crusher described in Section 19-

Consider another perpetual project like the crusher described in Section 19-1. Its initial investment is $1,000,000, and the expected cash inflow is $95,000 a year in perpetuity. The opportunity cost...

Q: True or false? a. A firm that earns the

True or false? a. A firm that earns the opportunity cost of capital is earning economic rents. b. A firm that invests in positive-NPV ventures expects to earn economic rents. c. Financial managers sho...

Q: Look again at Problem 7, which asked you to assume that

Look again at Problem 7, which asked you to assume that the 6.5% interest rate was the opportunity cost of capital. Was that a reasonable assumption? What should the opportunity cost of capital for in...

Q: Polar Express Railroad keeps a $5 million inventory of spare parts

Polar Express Railroad keeps a $5 million inventory of spare parts on hand for repairing unexpected breakdowns and equipment failures. The inventory is held in one centralized warehouse at a storage c...

Q: Consider the following two mutually exclusive projects: / a

Consider the following two mutually exclusive projects: a. Calculate the NPV of each project for discount rates of 0%, 10%, and 20%. Plot these on a graph with NPV on the vertical axis and discount ra...

Q: Consider the following two projects: / a. If

Consider the following two projects: a. If the opportunity cost of capital is 11%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two pr...

Q: Project NPV and IRR A project requires an initial investment of $

Project NPV and IRR A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,000 per year for five years. Company A has substantial accumulated t...

Q: A project has the following forecasted cash flows: /

A project has the following forecasted cash flows: The estimated project beta is 1.5. The market return rm is 16%, and the risk-free rate rf is 7%. a. Estimate the opportunity cost of capital and the...

Q: Emperor’s Clothes Fashions can invest $5 million in a new plant

Emperor’s Clothes Fashions can invest $5 million in a new plant for producing invisible makeup. The plant has an expected life of five years, and expected sales are 6 million jars of makeup a year. Fi...

Q: Take another look at the valuations of Rio in Tables 19.

Take another look at the valuations of Rio in Tables 19.1 and 19.2. Now use the live spreadsheets in Connect to show how Rio’s value depends on: a. The forecasted long-term growth rate. b. The require...

Q: Whispering Pines Inc. is all-equity-financed. The

Whispering Pines Inc. is all-equity-financed. The expected rate of return on the company’s shares is 12%. a. What is the opportunity cost of capital for an average-risk Whispering Pines investment? b....

Q: Consider a project lasting one year only. The initial outlay is

Consider a project lasting one year only. The initial outlay is $1,000, and the expected inflow is $1,200. The opportunity cost of capital is r = .20. The borrowing rate is rD = .10, and the tax shiel...

Q: The near collapse of the Irish banking sector in 2008, due

The near collapse of the Irish banking sector in 2008, due to insolvency, led the Irish Government at the time to provide a blanket guarantee to cover the liabilities of all the financial institutions...

Q: College students sometimes work as summer interns for private firms or the

College students sometimes work as summer interns for private firms or the government. Many of these positions pay little or nothing. a. What is the opportunity cost of taking such a job? b. Explain w...

Q: Buffy is thinking about opening an amulet store. She estimates that

Buffy is thinking about opening an amulet store. She estimates that it would cost $350,000 per year to rent the location and buy the merchandise. In addition, she would have to quit her $80,000 per ye...

Q: A firm’s current profits are $900,000. These profits

A firm’s current profits are $900,000. These profits are expected to grow indefinitely at a constant annual rate of 2 percent. If the firm’s opportunity cost of funds is 4 percent, determine the value...

Q: You are in the market for a new refrigerator for your company’s

You are in the market for a new refrigerator for your company’s lounge, and you have narrowed the search down to two models. The energy-efficient model sells for $1,600 and will save you $40 in electr...

Q: Approximately 14 million Americans are addicted to drugs and alcohol. The

Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity....

Q: According to The Wall Street Journal, merger and acquisition activity in

According to The Wall Street Journal, merger and acquisition activity in the first quarter rose to $5.3 billion. Approximately three-fourths of the 78 first-quarter deals occurred between information...

Q: What is the maximum amount you would pay for an asset that

What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each of five years if the opportunity cost of using funds is 8 percent?

Q: A Nike women’s-only store in California offers women’s running,

A Nike women’s-only store in California offers women’s running, training, and sportswear products and also contains an in-store fitness studio for group and personal fitness training sessions. The sto...

Q: A monopolist earns $30 million annually and will maintain that level

A monopolist earns $30 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist w...

Q: Filmco makes two thin film (gauge = 12μm) products for

Filmco makes two thin film (gauge = 12μm) products for packaging applications in the food industry. Product A is coated so that subsequently it can be printed on; product B is uncoated....

Q: What is the annual opportunity cost of a checking account that requires

What is the annual opportunity cost of a checking account that requires a $300 minimum balance to avoid service charges? Assume an interest rate of 3 percent.

Q: Branch banks must keep enough money on hand to satisfy customers’ cash

Branch banks must keep enough money on hand to satisfy customers’ cash demands. Suppose that the daily demand for cash at a branch of University Bank follows a lognormal distribution...

Q: One of the examples in this chapter dealt with determining the optimal

One of the examples in this chapter dealt with determining the optimal reorder point for a computer monitor sold by Millennium Computer Corp. Suppose that it costs MCC $0.30 per day in holding costs f...

Q: Bamboo Limited is a highly specialist firm of central heating suppliers operating

Bamboo Limited is a highly specialist firm of central heating suppliers operating exclusively in the textiles industry. It has recently been asked to tender for a contract for a prospective customer....

Q: A friend offers you a ticket to a Chicago Cubs baseball game

A friend offers you a ticket to a Chicago Cubs baseball game for $40. You know you can sell the ticket to another friend for $50. What is the opportunity cost of buying the ticket but thenchoosingto g...

Q: Heavenly Treat manufactures cases of hot chocolate that are typically sold to

Heavenly Treat manufactures cases of hot chocolate that are typically sold to restaurants. Its main factory has the capacity to produce and sell 12,000 cases per month. The following information is av...

Q: Friendly Software recently developed new spreadsheet software, Easy-Calc,

Friendly Software recently developed new spreadsheet software, Easy-Calc, which it intends to market by mail through ads in computer magazines. Just prior to introducing Easy-Calc, Friendly receives a...

Q: Suppose that the newly hired environmental manager examines the report and makes

Suppose that the newly hired environmental manager examines the report and makes the following comment: “This report understates the total environmental costs. It fails to consider the costs we are im...

Q: Xenold, Inc., manufactures and sells cooktops and ovens through three

Xenold, Inc., manufactures and sells cooktops and ovens through three divisions: Home, Restaurant, and Specialty. Each division is evaluated as a profit center. Data for each division for last year ar...

Q: If you were to leave college, what things would change in

If you were to leave college, what things would change in your life? What, then, is the opportunity cost of your education?

Q: A person rents a house for $24,000 per year

A person rents a house for $24,000 per year. The house can be purchased for $200,000, and the tenant has this much money in a bank account that pays 4 percent interest per year. Is buying the house a...

Q: Use the concept of opportunity cost to explain why velocity is higher

Use the concept of opportunity cost to explain why velocity is higher at higher interest rates.

Q: Becky Shelton, a marketing coordinator for Douglass Enterprises, is in

Becky Shelton, a marketing coordinator for Douglass Enterprises, is in charge of ordering the T-shirts to be sold for the company’s annual fund-raising project. The T-shirts are printed with a special...

Q: Because of rapidly advancing technology, Chicago Publications Corporation is considering replacing

Because of rapidly advancing technology, Chicago Publications Corporation is considering replacing its existing typesetting machine with leased equipment. The old machine, purchased two years ago, has...

Q: Norman Dowd owns his own taxi, for which he bought a

Norman Dowd owns his own taxi, for which he bought a $10,000 permit to operate two years ago. Mr. Dowd earns $30,000 a year operating as an independent but has the opportunity to sell the taxi and per...

Q: Denise Jensen is the editor-in-chief of her school’s

Denise Jensen is the editor-in-chief of her school’s yearbook. The school has 1,200 students and 40 faculty and staff members. The firm engaged to print copies of the yearbook charges the school $20 p...

Q: Because their three adult children have all at last left home,

Because their three adult children have all at last left home, Joseph and Audrey Peck recently moved to a smaller house. Joseph owns a riding lawnmower he bought three years ago to take care of the fo...

Q: Two years ago, Corey Jemison bought a truck for $35

Two years ago, Corey Jemison bought a truck for $35,000 to offer delivery services. Corey earns $40,000 a year operating as an independent trucker. He has an opportunity to sell his truck for $18,750...

Q: On Monday morning, you have $5000 in cash on hand

On Monday morning, you have $5000 in cash on hand. For the next seven days, the following cash requirements must be met: Monday, $5000; Tuesday, $6000; Wednesday, $9000; Thursday, $2000; Friday, $7000...

Q: Osborn, Inc., produces cell phone equipment. Amanda Westerly,

Osborn, Inc., produces cell phone equipment. Amanda Westerly, Osborn’s president, implemented a quality-improvement program that has now been in operation for two years. The cost rep...

Q: CompTech Solution purchases one model of computer at a wholesale cost of

CompTech Solution purchases one model of computer at a wholesale cost of $400 per unit and resells it to end consumers. The annual demand for the company’s product is 500,000 units. Ordering costs are...