Trans-Pacific Industry & Technology Company

Trans-Pacific Industry & Technology (TPIT), Inc. is a diversified industrial company. The Company owns businesses providing products & services to the energy, transportation, chemical, and construction sectors.

The energy segment operates as an oil and natural gas contract drilling company the United States. The energy segment acquires, explores, develops, and produces oil and natural gas properties primarily located in Oklahoma and Texas, as well as in Arkansas, Colorado, Kansas, Louisiana, Mississippi, Montana, New Mexico, North Dakota, Utah, and Wyoming. This segment generated over $10 billion of revenue in 2016.

The transportation segment is among the largest public railroad in North America. Operating on 12,000 miles of track in the western one thirds of the U.S., This segment generated over $20 billion of revenue in 2016 by hauling coal, industrial products, intermodal containers, agriculture goods, chemicals, and automotive goods.

The chemical segment sells value-added chemicals, thermoplastic polymers, and other chemical-based products worldwide. This segment develops, produces, and supplies specialty polymers for automotive and medical applications, as well as for use in industrial products and consumer electronics. This segment generated over $5 billion of revenue in 2016.

The Construction segment produces and sells specialty construction chemicals, specialty building materials, and packaging sealants and coatings. The Company operates through two segments: Specialty Construction Chemicals and Specialty Building Materials. The Specialty Construction Chemicals segment manufactures and markets products to manage performance of Portland cement, and materials based on Portland cement, such as concrete admixtures and cement additives, as well as concrete production management systems. The Specialty Building Materials segment manufactures and markets building envelope products, residential building products and specialty construction products. This segment generated over $5 billion of revenue in 2016.

During the last few years, Trans-Pacific Industry has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program that has been proposed by the marketing department. The expansion requires investment in eight projects from the four segments. Table-1 provides information about the projects.

Assume that you are an assistant to Jim Jones, the financial vice president. Your first task is to estimate TPIT's cost of capital.

As a part of your analysis you have collected the following data:

The firm's tax rate is 40%.

The current price of TPIT 12% coupon, semiannual payment, non-callable bonds with 15 years remaining to maturity is $1,153.72. TPIT does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.

The current price of the firm's 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. TPIT would incur flotation costs equal to 5% of the proceeds on a new issue.

TPIT's common stock is currently selling at $50 per share. Its last dividend was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. TPIT's beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%.

Suppose the firm has historically earned 15% on equity (ROE) and retained 35% of earnings, and investors expect this situation to continue in the future. How could you use this information to estimate the future dividend growth rate, and what growth rate would you get? Is this consistent with the 5.8% growth rate given earlier?

TPIT's target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity.

1 What sources of capital should be included when you estimate TPIT's weighted average cost of capital (WACC)?

2 Should the component costs be figured on a before-tax or an after-tax basis?

3 Should the costs be historical (embedded) costs or new (marginal) costs? Explain?

B.

1.On the market for widgets, the maximum price anyone is willing to pay is $100 (quantity demanded is zero at a higher price). The equilibrium price is $80 and the equilibrium quantity is 442. Calculate consumer surplus on the market.

2. Hester owns an ice cream shop. It costs her $1 per cone to make 48 ice cream cones. If she sells 48 cones for $5 each, her producer surplus is equal to

3. On a competitive market, consumers demand 116 units and producers supply 10 units at a price of 5. When price increases to 10, consumers demand 84 units and producers supply 35 units. By how much did the market shortage decreased because of this price increase?

4. The consumer surplus at the equilibrium price of $10 and equilibrium quantity of 100 units is 3000. The government imposes a price floor at $39, which reduces quantity traded to 60. What is the resulting consumer surplus?

5. A per-unit tax is introduced on a market. The tax increases the price paid by consumers by $19, decreases the price received by producers by $21, and decreases the quantity traded on the market from 850 to 500 units. What is the tax revenue?

6. After an excise tax of $30 is introduced on a market, consumer surplus drops from 6500 to 4500 while producer surplus drops from 5000 to 4000. The equilibrium price before the tax was introduced was $95. What is the price paid by consumers after the tax?

7. A perfectly competitive firm realizes a total revenue of $2500 and a profit of $500. The firm sold its product at a price of $17 per unit. What was the average total cost

8. The price of coffee rose 22 percent and the quantity of coffee demanded fell by 79 percent. What is the price elasticity of demand for coffee? Report your answer in its absolute value, rounded to 2 decimal places.

9. A monopolist with constant marginal cost of $20 produces 100 units of product that is sells for a price of $44. If this monopolist was a perfectly competitive firm, it would produce 150 units of product. What is the revenue of this firm if it was perfectly competitive?

10. The marginal cost is constant and equal to 20. There are no fixed costs of production. What is the average variable cost of producing 68 units?.

Part c.

Solve the following questions according to the instructions given.

4. Assume that a firm's short run cost function is C(q) =100q-4q' +0.2q' +450. What is the firm's short run supply curve?? If price is p=115, how much output does the firm supply? 5. Each firm in a competitive market has a cost function of C(q) = q-q' + q . There are an unlimited number of potential firms in this market. The market demand function is given by Q=24- p . Determine the long run equilibrium price, quantity per firm, market quantity and number of firms. How do these values change is a tax of $1 per unit is collected from each firm? 6. Assume that the inverse demand function for cheese is Q=100-10p and the supply curve is Q=10p. a. [Easy] What are the effects of a specific tax of $1 per unit on the equilibrium quantity and price, government tax revenue, consumer surplus, producer surplus, welfare and DWL? b. [Harder] What are the effects of a specific subsidy (negative specific tax) of $1 per unit on the equilibrium quantity and price, government tax revenue, consumer surplus, producer surplus, welfare and DWL? c. [Hard] The government, instead of a tax or subsidy, imposes a price support (minimum price) of $6. The way this is implemented is via a deficiency payment. This means the government will guarantee producers a price of $6 and the producers choose their output accordingly. They then sell that output to consumers at whatever price consumers are willing to pay for that total output (not $6!!!). The government pays producers the difference between the $6 dollars and the price consumers are willing to pay for all units produced. This payment is called the deficiency payment. What is the quantity supplied, the price that clears the market and the deficiency payment? What effect does this program have on consumer surplus, producer surplus, welfare and deadweight loss? d. [Medium hard] Now instead of any of the policies above, the government imposes a price ceiling of $3. That is it. Price is not allowed to rise above $3. How does equilibrium change (price and quantity)? What effect does this price ceiling have on consumer surplus, producer surplus and deadweight loss?OPPORTUNITY COST WORKSHEET 2 Below, you are provided Gerardo's Production Possibilities Frontier between biology homework and economics homework before and after he attends economics tutoring sessions. You will use this information to identify how a technological innovation that affects production of only one good alters the opportunity cost associated with producing both goods. PPF1 depicts Gerardo's PPF between biology homework and economics homework before he attends economics tutoring sessions. PPF2 depicts Gerardo's PPF between biology homework and economics homework after he attends economics tutoring sessions. 14 Economic Homework (in pages] 10 12 14 Minlazy Homework [in pages) Part 1: Before Gerardo attends economics tutoring sessions, what is his opportunity cost of producing an additional page of economics homework? Part 2: Before Gerardo attends economics tutoring sessions, what is his opportunity cost of producing an additional page of biology homework? * Part 3: After Gerardo attends economics tutoring sessions, what is his opportunity cost of producing an additional page of economics