Suppose the monopolist able to successfully price discriminate between two groups by charging one group $ 75 and charging $35 to
1 answer:
Answer:
The firm's profits if it charges the two prices as mentioned above = $ 1425
Explanation:
P.S - The exact question is -
Proof -
we calculate the profits individually for 2 different prices:
When price = $75:
Quantity sold = 15 units
Total revenue = 15 × 75 = $1125
Total cost = Marginal cost × quantity
= 20 x 15 = $ 300
⇒Total cost = $300
So,
Profit = 1125 - 300 = $825
When price = $35 :
Quantity sold = 55 - 15 (quantity purchased at price = $75)
⇒Quantity sold = 40
Total revenue = 40 × 35 = $1400
Total cost = Marginal cost × quantity
= 20 x 40 = $ 800
⇒Total cost = $800
So,
Profit = 1400 - 800 = $600
Now,
Total combined profit = 825 + 600 = $1425
∴ we get
The firm's profits if it charges the two prices as mentioned above = $ 1425
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Answer:
Re = 16.02%
Explanation:
current stock price 36 x 7,660,000 = 275,760,000
cost of equity = 17.5%
current short term debt = 141,600,000
cost of short term debt = 8.5%
current long term debt = 210,600,000
cost of long term debt = 10.5%
total financing = 627,960,000
- equity = 275,760,000 / 627,960,000 = 0.4391
- short term debt = 141,600,000 / 627,960,000 = 0.2255
- long term debt = 210,600,000 / 627,960,000 = 0.3354
WACC = (0.4391 x 0.175) + (0.2255 x 0.085 x 0.75) + (0.3354 x 0.105 x 0.75) = 0.0768 + 0.0144 + 0.0264 = 0.1176 or 11.76%
under the new structure:
total financing = 627,960,000
- equity = 325,760,000 / 627,960,000 = 0.5188
- short term debt = 141,600,000 / 627,960,000 = 0.2255
- long term debt = 160,600,000 / 627,960,000 = 0.2557
assuming WACC remains unchanged:
0.1176 = (0.5188 x Re) + (0.2255 x 0.085 x 0.75) + (0.2557 x 0.105 x 0.75) = (0.5188 x Re) + 0.0144 + 0.0201 = (0.5188 x Re) + 0.0345
0.5188 x Re = 0.1176 - 0.0345 = 0.0831
Re = 0.0831 / 0.5188 = 0.1602 or 16.02%
