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Finance
There is an investment proposal consisting of a new more effective, oil pump that will remove a fixed quantity of oil out of the ground more quickly than our existing pump. It requires an initial outflow of $1,600 for the new pump. The incremental net cash flows for this investment are:
NCFs
Year 0 Year 1 Year 2
-$1,600 $10,000 -$10,000
Calculate the IRR for this project if the cost of capital is 10%? If you are having a situation of multiple internal rate of return in this investment than how will it be resolved?
NCFs
Year 0 Year 1 Year 2
-$1,600 $10,000 -$10,000
Calculate the IRR for this project if the cost of capital is 10%? If you are having a situation of multiple internal rate of return in this investment than how will it be resolved?
Finance
Suppose that a trader enters into a long futures position for 1000 oil barrels with a delivery date on December 2016 and a future price of $40 per barrel. Suppose that on delivery date, the spot price of oil is $45 per barrel. What is the payoff to the long position?
Finance
Question 7. Now, consider another scenario where technology advancement changes the cost functions of each representative firm. The market demand is still the original one (before the increase in the number of students). The new cost functions are: TC = qs^2+5qs + 36 MC = 2qs + 5 What will be the new equilibrium price?
a. 17
b. 4
c. 2
d. 6
Question 8. What is the long-run equilibrium price in this market?
a. 12
b. 14
c. 25
d. None of the above
Question 9. What is the long-run output of each representative firm in this industry?
a. 5
b. 3
c. 6
d. 7
Question 10. When this industry is in long-run equilibrium, how many firms are in the industry?
a. 3
b. 80
c. 40
d. 100
a. 17
b. 4
c. 2
d. 6
Question 8. What is the long-run equilibrium price in this market?
a. 12
b. 14
c. 25
d. None of the above
Question 9. What is the long-run output of each representative firm in this industry?
a. 5
b. 3
c. 6
d. 7
Question 10. When this industry is in long-run equilibrium, how many firms are in the industry?
a. 3
b. 80
c. 40
d. 100
Finance
Question 3. Determine the equation for average total cost for the firm
a. 2qs + 2 + 50/qs
b. 2qs + 5 + 50/qs
c. 3qs + 5 + 50/qs
d. None of the above
Question 4. Determine the market quantity Q from the market demand curve, given that we know the above calculated market price.
a. 23
b. 504
c. 34
d. 89
Question 5. In the long-run given this technological advance, how many firms will there be in the industry?
a. 34
b. 84
c. 32
d. 56
Question 6. Now suppose that the number of students increases such that the market demand curve for study desks shifts out and is given by, PD = 1525 – 2QD . What will be the new long-run equilibrium price in this industry?
a. 25
b. 34
c. 23
d. 45
a. 2qs + 2 + 50/qs
b. 2qs + 5 + 50/qs
c. 3qs + 5 + 50/qs
d. None of the above
Question 4. Determine the market quantity Q from the market demand curve, given that we know the above calculated market price.
a. 23
b. 504
c. 34
d. 89
Question 5. In the long-run given this technological advance, how many firms will there be in the industry?
a. 34
b. 84
c. 32
d. 56
Question 6. Now suppose that the number of students increases such that the market demand curve for study desks shifts out and is given by, PD = 1525 – 2QD . What will be the new long-run equilibrium price in this industry?
a. 25
b. 34
c. 23
d. 45
Finance
The market for study desks is characterized by perfect competition. Firms and consumers are price takers and in the long run there is free entry and exit of firms in this industry. All firms are identical in terms of their technological capabilities. Thus the cost function as given below for a representative firm can be assumed to be the cost function faced by each firm in the industry. The total cost and marginal cost functions for the representative firm are given by the following equations:
TC = 2qs^2+ 5qs + 50
MC = 4qs + 5
Suppose that the market demand is given by:
PD = 1025 – 2QD
Note: Q represents market values and q represents firm values. The two are different.
Question 1: At the new long-run equilibrium, how many firms will be in the industry?
a. 32
b. 45
c. 150
d. 230
Question 2. At the new long-run equilibrium, what will be the output of each representative firm in the industry?
a. 4
b. 5
c. 3
d. 2
TC = 2qs^2+ 5qs + 50
MC = 4qs + 5
Suppose that the market demand is given by:
PD = 1025 – 2QD
Note: Q represents market values and q represents firm values. The two are different.
Question 1: At the new long-run equilibrium, how many firms will be in the industry?
a. 32
b. 45
c. 150
d. 230
Question 2. At the new long-run equilibrium, what will be the output of each representative firm in the industry?
a. 4
b. 5
c. 3
d. 2
Finance
Question 4: When q1 = 50, what will be MR1?
a. 7
b. 2
c. 4
d. 3
Question 5: When q1 = 60, what will be MR1?
a. 0
b. 2
c. 4
d. 6
Question 6: When q1 = 80, what will be MR1?
a. 7
b. -4
c. 5
d. -8
Question 7: When q2 = 100, then MR2 will be
a. 16
b. 32
c. -32
d. -16
Question 8: When q2 = 50, price at this level of output will be
a. 12
b. 14
c. 24
d. 32
Question 9: When q2 = 50, then MR2 will be
a. 2
b. 4
c. 5
d. 6
Question 10: When q2 = 70, then MR2 will be
a. 4
b. -9
c. -4
d. -5
a. 7
b. 2
c. 4
d. 3
Question 5: When q1 = 60, what will be MR1?
a. 0
b. 2
c. 4
d. 6
Question 6: When q1 = 80, what will be MR1?
a. 7
b. -4
c. 5
d. -8
Question 7: When q2 = 100, then MR2 will be
a. 16
b. 32
c. -32
d. -16
Question 8: When q2 = 50, price at this level of output will be
a. 12
b. 14
c. 24
d. 32
Question 9: When q2 = 50, then MR2 will be
a. 2
b. 4
c. 5
d. 6
Question 10: When q2 = 70, then MR2 will be
a. 4
b. -9
c. -4
d. -5
Finance
The president of the Martin Company is considering two alternative investments, X and Y. If each investment is carried out, there are four possible outcomes. The present value of net profit and profitability of each outcome follow:
Investment X Investment Y
Outcome Net Present Value Probability Outcome Net Present value Probability
1 $ 20 million 0.2 A $ 12 million 0.1
2 8 million 0.3 B 9 million 0.3
3 10 million 0.4 C 6 million 0.1
4 3 million 0.1 D 11 million 0.5
Question 1: Risk management is responsibility of the
a. Customer
b. Investor
c. Developer
d. Project team
Question 2. The president of the Martin Company has the utility function U = 10 + 5P – 0.01 P^2. Which investment should she choose?
a. Investment x
b. nor investment X neither investment Y
c. Investment Y
d. None of the above
Question 3. What is the coefficient of variation of investment X?
Select one:
a. 37%
b. 23%
c. 47%
d. 65%
Investment X Investment Y
Outcome Net Present Value Probability Outcome Net Present value Probability
1 $ 20 million 0.2 A $ 12 million 0.1
2 8 million 0.3 B 9 million 0.3
3 10 million 0.4 C 6 million 0.1
4 3 million 0.1 D 11 million 0.5
Question 1: Risk management is responsibility of the
a. Customer
b. Investor
c. Developer
d. Project team
Question 2. The president of the Martin Company has the utility function U = 10 + 5P – 0.01 P^2. Which investment should she choose?
a. Investment x
b. nor investment X neither investment Y
c. Investment Y
d. None of the above
Question 3. What is the coefficient of variation of investment X?
Select one:
a. 37%
b. 23%
c. 47%
d. 65%
Finance
Assume that two identical firms in a purely oligopolistic industry selling a homogenous product agree to share the maket equally. The total market demand function for the commodity is Qd = 240 – 10P. The cost schedules of the firms are given in the following table:
q1 40 50 60 80 q2 50 70 100
SMC1 (Rs.) 8 10 12 16 SMC1 (Rs.) 4 6 9
SAC1 (Rs.) 13 12.3 12 13 SAC1 (Rs.) 7 6 7
Question 6: When q1 = 80, what will be MR1?
a. 7
b. -4
c. 5
d. -8
Question 7: When q2 = 100, then MR2 will be
a. 16
b. 32
c. -32
d. -16
Question 8: When q2 = 50, price at this level of output will be
a. 12
b. 14
c. 24
d. 32
Question 9: When q2 = 50, then MR2 will be
a. 2
b. 4
c. 5
d. 6
Question 10: When q2 = 70, then MR2 will be
a. 4
b. -9
c. -4
d. -5
q1 40 50 60 80 q2 50 70 100
SMC1 (Rs.) 8 10 12 16 SMC1 (Rs.) 4 6 9
SAC1 (Rs.) 13 12.3 12 13 SAC1 (Rs.) 7 6 7
Question 6: When q1 = 80, what will be MR1?
a. 7
b. -4
c. 5
d. -8
Question 7: When q2 = 100, then MR2 will be
a. 16
b. 32
c. -32
d. -16
Question 8: When q2 = 50, price at this level of output will be
a. 12
b. 14
c. 24
d. 32
Question 9: When q2 = 50, then MR2 will be
a. 2
b. 4
c. 5
d. 6
Question 10: When q2 = 70, then MR2 will be
a. 4
b. -9
c. -4
d. -5
Finance
MODULE IV : MARKET STRUCTURES
Case Study
Assume that two identical firms in a purely oligopolistic industry selling a homogenous product agree to share the maket equally. The total market demand function for the commodity is Qd = 240 – 10P. The cost schedules of the firms are given in the following table:
q1 40 50 60 80 q2 50 70 100
SMC1 (Rs.) 8 10 12 16 SMC1 (Rs.) 4 6 9
SAC1 (Rs.) 13 12.3 12 13 SAC1 (Rs.) 7 6 7
Question 1: Profits for this firm will be:
a. Rs. 420
b. Rs. 130 (wrong)
c. Rs. 350
d. Rs. 450
Question 2: When q1 = 40, What will be MR1?
a. 2
b. 8
c. 5
d. 4
Question 3: When q1 = 40, what will be the profit maximising output for the first firm?
a. 30
b. 60
c. 40
d. 20
Question 4: When q1 = 50, what will be MR1?
a. 7
b. 2
c. 4
d. 3
Question 5: When q1 = 60, what will be MR1?
a. 0
b. 2
c. 4
d. 6
Case Study
Assume that two identical firms in a purely oligopolistic industry selling a homogenous product agree to share the maket equally. The total market demand function for the commodity is Qd = 240 – 10P. The cost schedules of the firms are given in the following table:
q1 40 50 60 80 q2 50 70 100
SMC1 (Rs.) 8 10 12 16 SMC1 (Rs.) 4 6 9
SAC1 (Rs.) 13 12.3 12 13 SAC1 (Rs.) 7 6 7
Question 1: Profits for this firm will be:
a. Rs. 420
b. Rs. 130 (wrong)
c. Rs. 350
d. Rs. 450
Question 2: When q1 = 40, What will be MR1?
a. 2
b. 8
c. 5
d. 4
Question 3: When q1 = 40, what will be the profit maximising output for the first firm?
a. 30
b. 60
c. 40
d. 20
Question 4: When q1 = 50, what will be MR1?
a. 7
b. 2
c. 4
d. 3
Question 5: When q1 = 60, what will be MR1?
a. 0
b. 2
c. 4
d. 6
Finance
This co. is required to replace its trucks regularly owing to the importance of providing a reliable service to customers. The company is considering investing in a new truck at a cost of K1.2 million. Finozest’s bank has indicated that it can offer the company a finance lease with payments of K292,510.00, payable annually in arrears for five years. There is no residual payment or value. Kindly ignore taxation.
1. What is the interest rate implicit in the finance lease?
2. Assume that the bank wishes to keep the lease payment at K292,510.00 but requires that the annual payments are payable in advance. How does this change the interest rate implicit in the lease?
3. Assume that the truck has an expected residual value of K450,000 at the end of five years and the bank takes this residual value into account in setting the lease payments, which are payable annually in advance. How would this change your lease payment?
