You have developed the following linear regression output from the promotion data on the left of the regression output. Your bos
1 answer:
You might be interested in
Answer:
Investing today is a better option because it has a better NPV of $2.3398 million
Explanation:
Given data :
<u>For Today's Investment </u>
Initial capital investment = $4 million
positive cash flow = $2 million
period of cash flow = 4 years
project cost of capital = 10%
To get the value of This option we have to determine the NPV of this option
NPV = PMT * ----------- (1)
PMT = $2 million
r = 10%
initial cash flow = $4 million
Equation 1 becomes
NPV = (2 * 3.1699 ) - 4
= $6.3398 - $4 = $2.3398 million
<u>For later investment ( 2 years )</u>
initial capital investment = $5 million
90% chance of positive cash flow = $2.1 million
10% chance of positive cash flow = $1.1 million
project cost of capital = 10%
NPV value for a cash flow of $1.1 million
NPV = PMT *
PMT = $1.1 million
initial cash flow = $5 million
r = 10%
Hence NPV = ($1.1 * 3.1699 ) - $5 million
= $3.48689 - $5 million
= - $1.51311
therefore the present NPV = - $1.51311 / 1.21 = -$1.25 million ( therefore no investment will be made )
NPV value for a cash flow of $2.1 million
NPV = PMT *
PMT = $2.1 million
initial cash flow = $5 million
r = 10%
hence NPV = ($2.1 * 3.1699 ) - $5 million
= $6.65679 - $5
= $1.65679
therefore the present NPV = $ 1.65679 / 1.21 = $1.369 million
The Expected NPV value of later investment ( after 2 years )
= $0 * 10% + $1.369 * 90%
= $1.2321 million
Answer:
- Quantity from E to D.
- Price from B to A
Explanation:
Firms maximise their profit by supplying at the point where marginal revenue equals marginal cost.
In a Perfect competition, the Demand curve is also the Average revenue as well as the Marginal Revenue curve. As such, the company will sell where the marginal cost curve intersects with the Demand curve which was at point E. The price will therefore be at point B.
When the firm comes under a monopoly, it will start to supply as a monopoly does. In the Monopoly, the Marginal revenue curve is less than the demand curve and so the point where the MC curve intersects with the MR curve is the quantity they will supply at. That point is D. The price will be where this quantity intersects the demand curve which is at point A
