Knowlton Power is putting together its R&D budget for the coming year. The firm has compiled a list of potential research and development projects and estimated the interest rate and amount of financial capital required for various levels of R&D spending. The data collected is shown in the table below. Graph Knowlton Power's demand curve for financial capital when the firm receives only the private benefit of investing in R&D. Interest Dprivate (in Dsocial (in Point Rate millions) millions) A 14% $2 $3 B 12% $3 $5 10% $5 $7 D 8% $7 $9 E 6% $10 $14 Provide your answer below: (이12) (4, 2) (8, 2) (12, 2) (16, 2) 15 Financial capital (in millions $) 10 20 Rate of return (%)

Knowlton Power is putting together its R&D budget for the coming year. The firm has compiled a list of potential research and development projects and estimated the interest rate and amount of financial capital required for various levels of R&D spending. The data collected is shown in the table below. Graph Knowlton Power's demand curve for financial capital when the firm receives only the private benefit of investing in R&D. Interest Dprivate (in Dsocial (in Point Rate millions) millions) A 14% $2 $3 B 12% $3 $5 10% $5 $7 D 8% $7 $9 E 6% $10 $14 Provide your answer below: (이12) (4, 2) (8, 2) (12, 2) (16, 2) 15 Financial capital (in millions $) 10 20 Rate of return (%)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Semi-Salt Industries began its operation in 1975 and remains the only firm in the world that produces and sells commercial-grade polyglutamate. While virtually anyone with a degree in college chemistry could replicate the firm’s formula, due to the relatively high cost, Semi-Salt has decided not to apply for a patent. Despite the absence of patent protection, Semi-Salt has averaged accounting profits of 5.5 percent on investment since it began producing polyglutamate—a rate comparable to the average rate of interest that large banks paid on deposits over this period. Do you think Semi-Salt is earning monopoly profits? Why?
Large Company owns 35% of the common stock of Tiny Co. and uses the equity method to account for the investment. In 2025, Tiny reported an income of $260,000 and paid dividends of $90,000. There is no amortization associated with the investment. In 2025, how much income should Large Co. recognize related to this investment? O $90,000. O $91,000. O $122,500. O $31,500. O $59,500.
Modified True or False: State whether each statement is true or false. If the statement is false, briefly explain why it is so, and then restate it to make it true. A firm that is breaking even, or earning a zero level of profit, is one that is earning exactly a normal rate of return, which implies that new investors are not attracted, but current ones are not running away either.
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b) Adagio Corporation has return on equity (ROE) of 20% and its plowback ratio is p. The ROE and the plowback ratio are expected to stay the same in all future periods. The company's earnings are expected to be £4 per share next year. The cost of capital is 15%. What is the present value of growth opportunities of this corporation as a function of p? Calculate the present value of its growth opportunities for p = 30%.
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1.4) You use RM40,000 of your own money to start a catering business. During the first year you earn a 5% return on that investment. If the current interest rate on savings is 8%, you earn an economic profit of Working Calculation:
A firm that owns and manages rental properties is considering buying a building that would cost $800,000 this year, but would yield an annual revenue stream of $50,000 per year for the foreseeable future. For what range of interest rates would this purchase increase the present value of the firm?
The following table provides the annual profits of two startup tech firms along with their present value of profits calculated at an interest rate of 5 percent. Which firm would be your recommendation for an acquisition? Explain. Year Firm AProfits Firm BProfits 1 $1,000,000 $5,000,000 2 $1,200,000 $2,000,000 3 $1,400,000 ($800,000) 4 $1,500,000 $500,000 5 $1,600,000 ($100,000) PV $5,737,885 $6,217,892
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U and L are two firms with the same EBIT of $100,000. They are identical in every respect except firm L has a debt of $500,000 at 5% rate of interest. The cost of equity of firm U is 8% and that of firm L is 12%. Assume that arbitrage principle will be applied in this setting and it is possible to make an arbitrage profit (surplus). Also, all earnings streams are perpetuities, taxes are ignored and both firms distribute all earnings available to common stockholders. Assume that an investor has 20% of shares (equity) of the firm L and MM assumptions hold. That is, you will be able to borrow or lend at the same rate as the firms can (5%). How much would the arbitrage profit (surplus) be for that investor who owns 20% of equity of the firm L and plans to create that arbitrage by switching to firm U? (Do not use the $ sign in your answer. If your answer is $12,345.67, then enter 12345.67 )
4. The Quickhammer corporation has proposed a deal where you will outsource the fabrication of the sprocket assembly in your widget production line. Your Average Total Cost to produce the sprocket assembly is $200, but the Quickhammer Corporation says they can do it for $175 per assembly. You produce 18,500 sprocket assemblies per year. The deal would run for the indefinite future (in perpetuity). Your company WACC is 4.5%. What is the value of this deal to you today?