Managerial Economics 4th Edition Luke M. Froeb - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below 1. The higher the interest rates a. the more value individuals place on future dollars b. the more value individuals place on current dollars c. individuals …
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Managerial Economics 4th Edition Luke M. Froeb – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
1. The higher the interest rates
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2. A publisher is deciding whether or not to invest in a new printer. The printer would cost $500, and it would increase cash flows by $600 for the next two years. What is the present value of the cash flows from the investment?
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3. A publisher is deciding whether or not to invest in a new printer. The printer would cost $900, and would increase the cash flows in year 1 by $500 and in year 3 by $800. Cash flows do not change in year 2. If the interest rate is 12%, what is the present value of the cash flows from the investment?
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4. The lower the interest rates
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5. If the annual interest rate is 0%, the net present value of receiving $550 in the next year is
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6. If the annual interest rate is 10%, the net present value of receiving $550 in the next year is:
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7. If the interest rate is 11%, $1500 received at the end of 12 years is worth how much today?
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8. A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000. The firm’s current fixed costs are $9,000 and current marginal costs are $15. The firm currently charges $18 per unit. If the interest rate is 5% then the present value of the cash flows is
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9. Lucy invested $10,000 at the rate of 12%. According to the rule of 72, it would take ______ years for her money to double
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10. If GDP is expected to increase at a steady rate of 3% per year, how many years would it take for living standards to double?
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11. The government is looking to double the living standards of its population in 18 years, what rate of GDP growth would it need to achieve that?
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12. Ricky is thinking about borrowing $10,000 from Fred. He promises Fred cash flows of $5000 for the next three years. If Fred’s cost of capital is 10%, what is the present value of the stream of cash flows?
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13. According to the Net Present Value (NPV) rule, managers choose to invest if
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14. A publisher is deciding whether or not to invest in a new printer. The printer would cost $500, and it would increase cash flows by $600 for the next two years. If the cost of capital is 10% then the net present value of the investment is
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15. If the cost of capital increased to 25%, would the firm invest in the printer?
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| Use the following setup for the next four questions.
A publisher is deciding whether or not to invest in a new printer. The printer would cost $900, and would increase the cash flows in year 1 by $500 and in year 3 by $800. Cash flows do not change in year 2. If the interest rate is 12% |
16. What is the net present value of the investment?
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17. Is the investment in the new printer feasible?
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18. If the interest rate rises to 25% would the investment still take place?
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19. If the interest rate is 25%, but cash flows change such that the investment renders a cash flow of $500 in year 1 and $800 in year 2 instead of year 3, would the investment take place?
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| Use the following setup for the next two questions.
A manufacturing firm is deciding whether or not to invest in a new printer that needs an initial investment of $150,000. The investment would increase cash flows in the first year by $80,000 and in the second year by $75,000. |
20. If the interest rate is 10% then the net present value of the investment is
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21. If the cost of the capital is 9%, is the investment feasible?
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| Use the following setup for questions 23-24
A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000. The firm’s current fixed costs are $9,000 and current marginal cost are $15. The firm currently charges $18 per unit. |
22. If the cost of capital is 5% then the net present value of the investment is
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23. If the interest is 5%, should the firm undertake the investment?
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24. Ricky is thinking about borrowing $10,000 from Fred. He promises Fred cash flows of $5000 for the next three years. If Fred’s cost of capital is 10%, what is the Net Present Value of the investment for Fred?
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25. Projects with a positive NPV create
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| Use the following setup for questions 29-30
A firm’s fixed costs are $10 million. It sets the price at $1800 per unit and has marginal costs of $1,000. |
26. What’s the firm’s contribution margin per unit?
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27. The break-even quantity is
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| Use the following setup for questions 29-30
A firm’s fixed costs are $10 million. It sets the price at $1800 per unit and has marginal costs of $1,000. |
28. What is the firm’s contribution margin?
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29. The break-even quantity is
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30. The break-even quantity is
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31. Contribution margin is
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32. A business produces 5,000 units per month. It spends $12,000 on raw materials. It pays wages of $20,000. Other costs include $50,000 for rent, paid by the month. In order to break even the selling price per unit will have to be:
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33. A business produces 4,000 units per month which it sells at $20/unit. Costs include: $10,000 on raw materials, $15,000 in wages for operators and $10,000 in wages to sales people. If the business is just breaking even, what are its fixed costs:
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34. Break-even quantity is a point where
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35. If a firm sells more than the break-even quantity,
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36. Which of the following variables are needed to determine the break-even quantity?
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37. Which of the following defines a sunk cost?
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38. Which of the following will increase the break-even quantity?
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39. Which of the following will increase the price needed to break even?
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40. Which of the following will decrease the break-even quantity?
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41. Which of the following will decrease the price needed to break even?
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| Use the following setup for questions 44-45
A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000. The firm’s current fixed costs are $9,000 and current marginal cost are $15. The firm currently charges $18 per unit. |
42. What’s the firm’s current contribution margin?
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43. The current break-even quantity is
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44. A pottery craftsman is debating attending the crafters fair. It costs $50 to set up the booth and $20 in transportation to get his pottery to the fair. He nets $5 for each of his pieces, number of pots he must sell to make going to the fair worth the cost?
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45. A catering company is producing at a point where its marginal costs are $25 and its fixed costs are $5000. At the current price of $10 it is producing 50 meals. If the demand goes up, such that they can now charge $20 per meal, how much should the firm now produce?
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| Use the following setup for the next seven questions.
A firm is deciding between two different sewing machines. Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100. |
46. At what quantity is the firm indifferent between the two technologies?
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47. What is the cost of production at the number of units where the company is indifferent between the two technologies?
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48. If the price is $20 per unit, what is the break even amount of units for technology A?
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| Use the following setup for the next seven questions.
A firm is deciding between two different sewing machines. Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100. |
49. If the price is $60 per unit, what is the break even amount of units for technology B?
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50. If the price is $60 per unit, what is the break even amount of units for technology A?
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51. If the price is $110 per unit, what is the break even amount of units for technology B?
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52. If the company plans to produce 9 units, which technology should the firm choose?
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| Use the following setup for the next three questions.
Pastry Paradise is looking to expand. It decides to take over Sweet Tooth, a competitive firm. The two firms have similar technology but different costs. Pastry Paradise has $1500 fixed costs and $1 marginal cost per unit produced. Sweet Tooth has $500 fixed costs but $5 marginal cost per unit produced. |
53. If Pastry Paradise takes over Sweet Tooth, at what level of production would it be indifferent between which technology is used.
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54. What is the total cost, at the level of production where Pastry Paradise is indifferent between which technology is used?
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55. If the company plans to produce 5000 units of output, is using the competitor’s technology a good idea?
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56. A firm’s sunk costs are $100,000 and its marginal costs are $250 per unit. It produces 500,000 units and prices it at $400 per unit., How low can price go before the firm decides to shut down?
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57. In the short-run, a firm’s decision to shut-down should not take into consideration
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58. A firm sells 1000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65. In the short run, the firm should
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59. A firm sells 1000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65. In the long run, the firm should
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60. A firm sells 1000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65. At what price would the firm consider shutting down in the short run?
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61. A firm sells 1000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65. At what price would the firm consider shutting down in the long run?
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62. A firm sells 1000 units per week. It charges $15 per unit, the average variable costs are $10, and the average costs are $25. In the short run, the firm should
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63. A firm sells 1000 units per week. It charges $15 per unit, the average variable costs are $10, and the average costs are $25. In the long run, the firm should
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64. A firm sells 1000 units per week. It charges $15 per unit, the average variable costs are $10, and the average costs are $25. At what price does the firm consider shutting-down in the short run?
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65. A firm sells 1000 units per week. It charges $15 per unit, the average variable costs are $10, and the average costs are $25. At what price does the firm consider shutting-down in the long run?
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66. A firm sells 300,000 units per week. It charges $ 35 per unit, the average variable costs are $40, and the average costs are $55. In the short run, the firm should
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67. A firm sells 300,000 units per week. It charges $ 35 per unit, the average variable costs are $40, and the average costs are $55. In the long run, the firm should
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68. A firm sells 300,000 units per week. It charges $ 35 per unit, the average variable costs are $40, and the average costs are $55. At what price does the firm consider shutting-down in the short run?
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69. A firm sells 300,000 units per week. It charges $ 35 per unit, the average variable costs are $40, and the average costs are $55. At what price does the firm consider shutting-down in the long run?
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70. A firm will shut down in the short-run if
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71. A firm will shut down in the long-run if
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72. A firm sets its price at $10.00 per unit. It has an average variable cost of $8.00 and an average fixed cost of $4.00 per unit. In the short run, this firm is
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73. A firm sets its price at $10.00 per unit. It has an average variable cost of $8.00 and an average fixed cost of $4.00 per unit. In the long run, this firm is
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74. In order to continue operating, in the long-run a firm must
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75. A firm’s fixed but avoidable costs are $100,000 and its variable costs are $250 per unit. It produces 50,000 units and prices it at $400 per unit. In the long-run, how low can price go before the firm decides to shut down?
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76. A shoe manufacturer is producing at a point where its marginal costs are $5 and its fixed costs are $5000. At the current price of $10 it is producing 500 pairs. If the demand goes down, such that they can now only charge $8 per pair, should they continue production in the short run?
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77. Hold-up problems usually occur when
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78. What are some of the solutions for a hold-up problem?
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79. If a firm anticipates that it is at a risk of being held up, it is more likely to
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80. Firms that anticipate hold-up, choose organizational or contractual forms
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| 81. Project Delay
Prescott Labs is considering developing a defibrillator product. You know that will require extensive testing and possible modification before it can be launched. Still, you know that even if it is launched two years from now, the present value of sales over the expected 10 year product lifecycle will cover these costs. But now the boys down at the lab tell you that it may not launch for three years. How does this affect your assessment of going ahead with funding the product?
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| 82. Discontinuing a Generic Drug
Prescott Pharmaceuticals makes a number of generic versions of drugs. When Cymbalta (Duloxetine) lost its patent, Prescott invested $500,000 to obtain FDA approval and $100,000 to certify one of its production lines for its production. Production of the drug will cost $2,000,000. Marginal costs for the tablet are $0.10 and they sell for $0.40 per tablet. But many firms have entered and now make Duloxetine causing sales to fall off. Prescott anticipates that it could use this production line for other drugs losing patent protection shortly. If forecasted sales are 5 million tablets, what is the breakeven price? Should Prescott discontinue selling this product?
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| 83. Discontinuing a Missile Program
Merowak Missiles has developed its Democratizer Offensive Weapon System (DOWS) for the US military. After sinking $1 billion into R&D and design, it spent $0.5 billion building the tools and production facility that are unique to DOWS production. It houses these in standard factory floor space that costs $1 million. Each missile has a marginal cost of $2,000. The Pentagon is thinking of discontinuing the program because the missiles are too expensive. If Merowak were to get an order for 50,000 missiles, what would its breakeven price be?
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| 84. Funding a Missile Program
Merowak Missiles is proposing to develop its next generation Democratizer Offensive Weapon System II (DOWS II) for the US military. It expects to have to sink $1 billion into R&D and design, spend $0.5 billion building the tools and production facility that are unique to DOWS II production. It houses these in standard factory floor space that costs $1 million. Each missile has a marginal cost of $2,000. The Pentagon is considering ordering 1 million of these missiles. What is the average cost per missile that Merowak could bid for the contract?
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| 85. Bidding on a Missile Program
Merowak Missiles is proposing to develop its next generation Democratizer Offensive Weapon System II (DOWS II) for the US military. It expects to have to sink $1 billion into R&D and design, spend $0.5 billion building the tools and production facility that are unique to DOWS II production. It houses these in standard factory floor space that costs $1 million. Each missile has a marginal cost of $2,000. The Pentagon is considering ordering 1 million of these missiles. Merowak fears that the Pentagon will ask for a lower price after only half the missiles are produced. How could it keep itself from being victim of holdup?
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Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
