Economics of Enterprise Answers

Liquor manufacturers use an advertising campaign to counter a government anti-binge-drinking campaign.

Is it reasonable to expect firms to take actions that are in the public interest but are detrimental to stockholders? Is regulation always necessary and appropriate to induce firms to act in the public interest? Substantiate with real world examples

A company’s second year operations can be summarized as follows:
Revenues: $110 000
Expenses (except CCA): $65 000
Its capital asset purchases in the first year totalled $100 000, with none in the second year. With a CCA rate of 20 percent and a tax rate of 55 percent, how much income tax did it pay?

8. An asset costs $14 000. At a depreciation rate of 20 percent, calculate its book value using the declining-balance method.

Q8 ANSWER:
a) After one year ( 3 points)
……………..= ………………………….. = …………….
b) After four years ( 3 points)
……………..= ………………………….. = …………….
c) After seven years ( 3 points)
……………..= ………………………….. = …………….

7. Using a spreadsheet program (excel), chart the book value of a $150 000 asset for the first 10 years of its life at declining-balance depreciation rates of 5 percent, 20 percent, and 30 percent?
Q7 ANSWER:

Table: (5 points) Chart (to create a chart and place it here):
(6 points)
Year / d = 5% / d = 20% / d = 30%

6. For each of the following, state whether the value is a market value, book value, scrap value, or salvage value:

Q6 ANSWER:
a) Inta can buy a new stove for $800 at Joe’s Appliances. (2 points)
b) Jacques can sell his used stove to Inta for $200. (2 points)
c) Kitty can sell her used stove to the recyclers for $20. (2 points)
d) Liam can buy Jacques’s used stove for $200. (2 points)
e) Noriko is adding up the value of the things she owns. She figures her stove is worth at least $200. (2 points)

5. A bond pays $10 000 per year for the next 10 years. The bond costs $90 000 now. Inflation is expected to be 5 percent over the next 10 years.

Q5 ANSWER:

a) What is the current dollar internal rate of return? (5 points)
PW = …………… + ……………(………………….)
Interest rate PW





b) What is the real internal rate of return? (5 points)
The real internal rate of return:………..………………………= ………………

4. A company’s second year operations can be summarized as follows:
Revenues: $110 000
Expenses (except CCA): $65 000
Its capital asset purchases in the first year totalled $100 000, with none in the second year. With a CCA rate of 20 percent and a tax rate of 55 percent, how much income tax did it pay?

Q4 ANSWER:

Second year CCA (5 points):
………………………………………………………………………….
Net income (5 points):
………………………………………………………………………….
Taxes paid (5 points):
………………………………………………………………………….

3. Collingwood Caskets generally uses a before-tax MARR of 18 percent. Vincent wants to do a detailed calculation of the cash flows associated with a new planer for the assembly line. What would be an appropriate after-tax MARR for him to use if Collingwood Caskets pays

Q3 ANSWER:
a) 20 percent corporate taxes? (5 points):
………………………………………………………………………….
b) 40 percent corporate taxes? (5 points)
………………………………………………………………………….

1. Assume a firm’s total cost function is:- TC=12+60Q-15Q2+Q3
Required: Suppose that the firm produces 20 units of output. Calculate
Total fixed cost (TFC),
Total variable cost (TVC),
Average total cost (ATC),
Average fixed cost (AFC),
Average variable cost (AVC), and
Marginal cost (MC).