Economics of Enterprise Answers

Two alternative start-up FinTech projects were being contemplated for financing by a venture capitalist to determine which one is more viable, based on cost and returns. Table 4.1 below shows a five-year schedule for the two projects:

Table 4.1
Project Start of Project End of 1st Year End of 2nd Year End of 3rd Year End of 4th Year End of 5th Year
BlockChain GoPay ($230,000) ($32,000) $66,000 $96,000 $106,000 $119,000
DLT CloudPay ($276,000) $20,000 $65,000 $96,000 $102,000 $118,000

(a) If you were the Project Manager on the Venture Capitalist team, using the Net Present Value (NPV) method, which project would you recommend be financed based strictly on the schedule shown above and an interest rate of 7.5%?
(b) Use a Microsoft Excel, or any other method to deduce/calculate the Internal Rate of Return (IRR) for both projects. Explain how you would advise the Bank which project to finance using the result from the IRR method?

(c) If a Commercial Bank A offers its savers 10.3% annual interest rate and pays interest annually, while another Commercial Bank B offers its savers 10% annual interest rate but pays monthly. Which Commercial Bank you would deposit your money, if you intended to keep in the savings account for 5 years. Show all numerical calculations

A firm has a production function: Q=95K^{0.3}L^{0.2}R^{0.25}
Prices for the purchase of the respective K, L and R inputs are $ 30, $ 16 and $ 12 per unit. If the selling price of the product is $ 4 per unit, which is the maximum profit of the firm.(use hessian matrix)

A firm has a production function:
Prices for the purchase of the respective K, L and R inputs are $ 30, $ 16 and $ 12 per unit. If the selling price of the product is $ 4 per unit, which is the maximum profit of the firm.(use hessian matrix)

1. A firm trades two types of products that have a demand function:

Find the selling price for each product in order to maximize revenue from product sales. (use hessian matrix)

A young entrepreneur is about to set up a new firm producing protective cases for sunglasses. She calculates that the variable cost of producing each case will be € 5 and that the fixed costs of production will be €15.000 each month. She will be selling her cases at 10€ each
Complete the table below to show the fixed costs, variable costs and total costs of producing each possible level of output:

2. Can you write down and explain 2 advantages of break-even analysis?

3. What will be the situation for that entrepreneur if he sells 2.000 cases. Possible actions?

(a) Given the following information, determine which asset gives the best investment opportunity based on the calculated rate of return on asset? Show all calculations.
Risk Free Rate = 4.5%
Market Rate of Return = 7%

Table 7.1
Stock Beta Value
ECoin Investment LLC -0.2
Green Energy Inc. 1.0
Non Fossil Corp. 1.3
IoT Software Ltd. 0

(b) (i) How does the rate of return on these four companies stock compare to the market rate and the risk-free rate?
(ii) Which of the investments you might opt not to invest but instead purchase government bonds? Give reasons.
(iii) What can you deduce about the relationship between the return on an asset and the market rate or free interest rate when beta of the asset is 1 and 0 respectively?

(b) As a prospective business owner in the waste management business, you have researched the waste management truck market and you are attracted by two similarly functional truck offers. An identical cash price of $550,000 for the ARSLAN truck and the HIDRO-MAX truck with two different monthly repayment schedules offered by the respective financiers.

The repayment schedule for the ARSLAN truck requires a down payment of 10% while the repayment schedule for the HIDRO-MAX truck requires a down payment of 15%. If the repayment is over a period of 7 years at an annual loan rate of 6%, what would be the monthly repayment amount for both schedules? Assume that the monthly repayment starts 1 month after the mortgage contract is signed and the down payment made. Show all calculations.

Two alternative start-up FinTech projects were being contemplated for financing by a venture capitalist to determine which one is more viable, based on cost and returns. Table 4.1 below shows a five-year schedule for the two projects:

Table 4.1
Project Start of Project End of 1st Year End of 2nd Year End of 3rd Year End of 4th Year End of 5th Year
BlockChain GoPay ($230,000) ($32,000) $660,000 $96,000 $106,000 $119,000
DLT CloudPay ($276,000) $20,000 $65,000 $96,000 $102,000 $118,000

(a) If you were the Project Manager on the Venture Capitalist team, using the Net Present Value (NPV) method, which project would you recommend be financed based strictly on the schedule shown above and an interest rate of 7.5%?
(b) Use a Microsoft Excel, or any other method to deduce/calculate the Internal Rate of Return (IRR) for both projects. Explain how you would advise the Bank which project to finance using the result from the IRR method?

The repayment schedule for the ARSLAN truck requires a down payment of 10% while the repayment schedule for the HIDRO-MAX truck requires a down payment of 15%. If the repayment is over a period of 7 years at an annual loan rate of 6%, what would be the monthly repayment amount for both schedules? Assume that the monthly repayment starts 1 month after the mortgage contract is signed and the down payment made. Show all calculations.