CHART: project, total investment (dollars), & expected rate of return (percentag
ID: 1177365 • Letter: C
Question
CHART:
project, total investment (dollars), & expected rate of return (percentage)
new notebook for sales staff, $500,000, 22%
remodel for distribution center, $400,000, 18%
on-site day care center, $200,000, 10%
employee fitness center, $100,000, 8%
1) Using the data provided: If the interest rate is 9%, Nashbar Bicycle's total investment would be:
a) 1,100,000
b) 300,000
c) 900,000
d) 200,000
2) GM decides to build a new plant using retained earnings, then all of the following are TRUE EXCEPT:
a) GM stock appreciates in value
b) GM's tangible capital will increase as a result
c) GM is engaging in saving on behalf of its shareholders
d) GM is avoiding expeiencing opportunity costs
3) An externality exists when the cost or benefit resulting from some activity or transaction is experienced by parties external to the activity or transaction
a) true
b) false
4) Assume that the marginal cost of producing steel does not include the cost of the damage to the environment as a result of pollution. By producing where P=MC, the firm will be producing:
a) more than the efficient amount of steel
b) less than the efficient amount of steel
c) the efficient amount of steel
d) a zero quantity of steel
5) in perfect competition, when firms are maximizing profits and households are maximizing utility,
a) individual welfare is maximized, but social welfare is not
b) pareto optimality has been obtained
c) voluntary exchange can be used to make both firms and households better off
d) the outcome is inefficient
6) you use $50,000 of your own money to start a catering business. during the first year you earn a 5% return on that investment. if the current interest rate is 8%, you earn an economic profit of
a) -$4000
b) -$2500
c) -$1500
d) $4000
7) ABC corp is considering an investment project that costs $500 today. it expects the project will yield income of $200 at the end of years 1,2, and 3. if the interest rate is 10%, the firm
a) is just indifferent between undertaking the invesment and not
b) should forgo the invesment
c) should undertake the investment
d) indeterminate from the given information
Explanation / Answer
1)a
2) d
3) a
4)a
5)b
6) c
economic profit = profit - opportunity cost = 0.05 * 50000 - 0.08 * 50000 = -1500
7) b
NPV = -2.62.........so should not accept project