Suppose a tennis and racquet ball manufacturer decides to start making tennis racquets, but does not want to hire any additional managers. Which of the following is an example of an externality associated with the tennis racquet project? the current managers become overworked because the expansion project requires manager time and oversight. the new racquet project gives the company more visibility than it had before and increases sales of its existing tennis ball business. The manufacturer must stop producing racquet balls to make room for the equipment needed to produce tennis racquets. (a) and (b) above are examples of externalities associated with the tennis racquet project all of the above are examples of externalities associated with the tennis racquet project Use the following to answer questions 10-11. Friends in Low Places Brewery (FLP) is considering an upgrade of its bottling equipment. FLP hired a consultant to help determine the best type of equipment to purchase. The consultant's fee is dollar 5.000. By replacing the equipment. FLP expects sales revenues to increase by dollar 500.000 per year. Maintenance expenses are expected to increase by dollar 75,000 per year if the new equipment is purchased. Depreciation expenses would be dollar 100,000 per year (the company uses the straight-line depreciation method). The old equipment has been fully depreciated. The firm's marginal tax rate is 38 percent. The purchase will be financed with a dollar 500,000 bank loan carrying an annual interest rate of 10 percent. 10. What would be the firm's incremental annual cash operating cash flows if the new bottling equipment is purchased? dollar 170, 500 dollar 201, 500 dollar 270, 500 dollar 301, 500 FLP is having trouble deciding between two different machines to use on the bottling line. One is adequate to meet their current production goals, but the other has the ability to bottle beer twice as fast and only costs dollar 300,000 more. Suppose the manufacturer of the bottling equipment offers a guaranteed trade-in promotion that would allow the brewery to upgrade the equipment at any time without incurring additional expenses beyond the price difference between the two machines. How would this promotion affect FLP's capital budgeting decision? This promotion would only have an impact on FLP's capital budgeting decision if the firm took advantage of the trade-in option. This promotion is an example of a real option and would not have any impact on FLP's capital budgeting decision because real options are not actual cash flows. This promotion is an example of a real option and should be considered in the capital budgeting decision process because it would add value to the project. The firm should purchase the more expensive equipment now so that they can bottle extra beer without the hassle of trading in equipment at a later date
