MUST SHOW CALCULATIONS TO RECEIVE CREDIT.

1. Lucy invested $10,000 at the rate of 12%. According to the rule of 72, it would take ______ years for her money to double

a) 4

b) 5

c) 6

d) 7

2. A publisher is deciding whether or not to invest in a new printer. The printer would cost $500, and it would increase cash flows by $600 for the next two years. If the cost of capital is 10% then the net present value of the investment is

a) $1041.32

b) $541.32

c) $1090.91

d) $590.91

3. A manufacturing firm is deciding whether or not to invest in a new printer that needs an initial investment of $150,000. The investment would increase cash flows in the first year by $80,000 and in the second year by $75,000.

If the interest rate is 10% then the net present value of the investment is

a) $5,000

b) - $9,091

c) -$15,290

d) -$21,901

4. A firm's fixed costs are $10 million. It sets the price at $1800 per unit and has marginal costs of $1,000. What's the firm's contribution margin per unit?

a)$1200

b)$1000

c)$800

d) $400

Use the following information to answer the next two questions:

A firm's fixed costs are $5000. The firm charges $12 for each unit. For every additional unit the firm produces, it costs the firm $8.

5)What's the firm's contribution margin?

a)$12

b)$10

c)$8

d)$4

6)The break-even quantity is

a)1250

b)625

c)416.67

d)500

7. Assume that a firm has the following cost and revenue characteristics at its current level of output: price=$10.00, average variable cost=$8.00, and average fixed cost =$4.00.This firm is

a)incurring a loss of $2.00 per unit and should shut down.

b)realizing only a normal profit.

c)realizing an economic profit of $2.00 per unit.

d)incurring a loss per unit of $2.00, but should continue to operate inthe short run

8. A clothing manufacturing firm is deciding whether to invest in a new technology that needs an initial investment of $45,000. This will increase cash flows in the first year by $25,000 and $30,000 in the second year. The firm's current fixed costs are $9,000 and marginal cost is $15. The firm currently charges $18 per unit. If the interest rate is 15% then the net present value of these cash flows is

a)$6,020.41

b)$7,380.95

c)-$7,380.95

d)-$576.56

e)$2,826.09

9. If the interest is 15%, should the clothing manufacturing firm undertake the investment?

a)No, since NPV=0

b)No, since NPV<0

c)Yes, since NPV<0

d)Yes, since NPV>0

10. Pastry Paradise is looking to expand. It decides to take over Sweet Tooth, a competitive firm. The two firms have similar technology but different costs. Pastry Paradise has $1500 fixed costs and $1 marginal cost per unit produced. Sweet Tooth has $500 fixed costs and $5 marginal cost per unit produced.

If the company plans to produce 5000 units of output, is using the competitor's technology a good idea?

a. Yes

b. No

c. It does not matter, at 5000 units you are indifferent between the two technologies

d. None of the above

Explain the answer you chose: