Consider the following questions

5. (a) Evaluate the operational utility of demand elasticity estimates,

and outline any interpretational difficulties in the use of such

estimates.

(b) The annual demand function for a particular motor car is

estimated as:

D = 16000-10P/3+ Y2/1000

where D =annual demand, P =price in 's and Y =average disposable income.

(i) Given that the retail price next year will be 12 000, whilst

average disposable income is expected to be 8000, estimate next year's annual demand. If the manufacturer

receives 80% of the retail price for each car sold, estimate the manufacturer's revenue next year.

(ii) Find the retail price to maximize manufacturer's revenue

next year.

(iii) If the marginal cost per car is estimated to be 6000, find

the price to maximize profit next year.

(iv) In the subsequent year the retail price is expected to rise to 13 000, whilst incomes should increase by 5%. Estimate

demand and manufacturer's revenue for that year, and use this information to estimate the price and income demand

elasticities.

6. 'There is a simple relationship between advertising and profitability:

the most profitable firms are the ones that advertise most. Therefore

advertising must increase profitability.' Discuss.

7. Critically examine the proposition that as the contemplated future

volume of output increases, the expected unit cost of output declines.

8. Recommend a price and marketing strategy for the established

automobile manufacturer seeking to enter the market for specialist

competition motorcycles. Compare your recommendations to those

for the automobile firm seeking to enter the volume small car market.

9. An engineering firm about to undertake a production run of 2000

items must decide whether to overhaul the production machinery.

Because the machinery is quite old, the cost of an overhaul is

uncertain. However, after the overhaul the failure rate for the

machinery is certain to be 0.01. Without the overhaul, the machinery

has a failure rate with the probability distribution given below. Each

defective item costs the firm 6 in hand finishing.

Failure rate Probability

0.01 0.5

0.02 0.2

0.03 0.1

0.04 0.1

0.05 0.1

Examination questions and answer notes 341

(a) Find the expected cost of overhaul that would make the risk neutral decision-maker indifferent between overhauling or not.

(b) The decision-maker decides to seek further information. Contact with the machinery supplier suggests an overhaul is equally likely to cost either 175 or 225, depending on the problems encountered. Moreover a sample run of 10 items is produced, resulting in 2 defectives. Use this new information to re-assess the overhauling decision.

(c) How would the decision be influenced by:

(i) the firm's precarious financial position;

(ii) the knowledge that the machinery is to be scrapped after the next production run.

10. 'Opportunity cost is both subjective and speculative. As such the concept of opportunity cost has no place in the scientific decisionmaking process.' Discuss.

11. (a) Briefly explain the significance of the firm's cost of capital. What are the factors determining that cost of capital, and how can that cost be estimated?

(b) Given that debt finance is generally cheaper than equity finance, explain why the firm is unlikely to use solely debt finance to fund

expansion.

(c) A commodity broker is contemplating the acquisition of a new

computer-driven management information system (MIS). The

hardware for this would cost an initial 4 million, whilst software

and staff training would cost 1 million for each of the first two

years operation, and 200 000 per year thereafter. After six

years, the system would be due for replacement. However

scrapping the current (manual) system would save staff costs of

1.5 million each year.

To finance the new investment the broker would use a combination of debt and equity capital in the ratio 1:3. The broker can

borrow at an interest rate of 10%, whilst interest paid can be set

against the corporation tax liability (currently taxed at 30%).

The broker is a listed company with a current share price of

3.00, and current dividend of 15 pence. Over the period the

share price is expected to grow at an annual rate of 6%.

Use the above information to evaluate investment in the new MIS, finding the net present value and internal rate of return on

that investment.

What other factors should the decision-maker take into account?

The Board of Directors Alfa Company borrowed a sum of money from a plaintiff. The Articles ofhssociation stated that the B.O.D's could bonow money provided they are authorized by a resolution in the general meeting ofthe company. The shareholders claimed thatthe fund were taken w'r'iout any such resolution; Alfa Company was liable for the loans the plaintiff found that the company could borrow funds based on the resolution, they had enough grounds to believe that resolution was passed. 0n the basis of the above; discuss: a. The importance of resolutions in the management ofthe company. b. As per the Commercial Company Law, does the situation support the plaintiff? c. As per the Commercial Company Law, does the situation support shareholders ofthe Aa Company? d. Are the role of Directors supported by such a situation in Oman Company Law? (a) An abuse cure is a legal right accessible to mistreated investors. It enables the investors to get an activity against the organization which they own offers when the direct of the organization has an impact that is harsh, unreasonably biased, or unjustifiably dismisses the interests of an investor. It was acquainted accordingly with, which had held that where an organization's activities were approved by a dominant part of the investors, the courts won't by and large meddle. Organization law truly depends on the guideline of greater part rule. Board and investor choices of organizations are generally controlled by a straightforward greater part vote. While this idea of lion's share rule is essential to organization law, it contains an innate danger of misuse. This danger was exacerbated by the standard in Foss v Harbottle. As per Brockett this standard gave 'that wrongs to the organization should be changed simply by activity taken by the organization in its own name, rather than the activity of individual individuals or gatherings of individuals, and that 'courts ought not meddle with the inside administration of organizations acting inside their forces.' However, unbending adherence to the standard regularly denied minority investors response against chiefs and dominant part investors. Therefore, the courts built up various 'special cases. In any case, various pundits have contended that the 'exemptions' for the standard in Foss v Harbottle are actually not special cases by any means, but rather circumstances where the standard basically can't apply. In expansion, various commonsense and legitimate challenges concerning the activity of the special cases have implied that moderately hardly any subsidiary activities have continued.' The principle troubles fixated on the impact of confirmation of the purportedly severe lead by the regular gathering of investors. On the off chance that compelling, the implied approval could deny the organization all in all, and henceforth minority investors, any privilege of activity against the chiefs. There were likewise issues brought about by the exacting models that should be set up under the steady gaze of a court may give relief. (b) Any agreement or other exchange implying to be gone into by an organization preceding its arrangement or by any individual for the organization before its development, might be sanctioned by the com-pany after its arrangement; and immediately the organization will get limited by and qualified for the advantage.Question 30 (1 point) Dakota Manufacturing has a contract with Big Box Stores to furnish 10,000 widgets no later than April 15. It takes 14 days to make the widgets. When Dakota's widget 12 of 13 stamping machine breaks on March 20, it orders a new one from Widget Equipment, Inc. (WED) at a cost of $5500. Dakota tells WEI that it must have the new machine by April 1 or it will lose $10,000 for failure to perform its contract with Big Box. WEI does not deliver the widget stamping machine until April 5 and Dakota is unable to fulfill its contract with Big Box. Dakota can recover from WEI: O $5500 in compensatory damages. O $10,000 in consequential damages. O both A and B. 0 50. Save" nocobb. blackboard.com Home - Northem Elites Community College - Luminis Platform 60 QUESTION Take Test: Micro Chipter i Questions - Spring 2014.. 1. A Cul In Spearmint Spending, A Oncronus In Ine. The school of economic thought which argues that through tax reductions, and doregulation, goverment cechon the proper Incentives for the private sector to increase aggregate supply is known as the national expectations school supply-side school. O new classical school. QUESTION S points Savo Anmerge The marginal propensity to consume movumes the ratio of the: O merge amount of our income that we spend O average amount of our savings that we spend. () change in consumer spending to a change in money holdings. O) change in consumer spending to a change in interest rates. O change in consumer spending to a change in income. QUESTION 9 1 points Save Answer The marginal propensity to save is O the change in suning divided by the change in income. @ the change in income divided by the change in saving O uning divided by income. O) came divided by saving saving divided by oowumption. I points Sauce Answer QUESTION 10 The Loffer curve is a graph of the relationship between tax rates and: total the moveruns O poremant spending "Neck Save and Submit to wive and submit. CNick Save All Anmeers to save all answers, Save A Arwen Save and Submit MacBook AirD Question 44 1 pts According to the Keynesian-cross analysis, when there is a shift upward in the government-purchases schedule by an amount AG and the planned expenditure schedule by an equal amount, then equilibrium income rises by: The change in government spending multiplied by the quantity one plus the marginal propensity to consume. The change in government spending divided by the quantity one minus the marginal propensity to consume. @) The change in government spending. one unit