The Costa Coffee Company (for short CCC) is anticipating a major expansion of its franchised coffee outlets into Europe and African countries. The investment opportunities available to the company involve rates of return and initial investment amounts that differ because of differences in operating costs and consumer demand in the countries involved. The total investment (M) that CCC can undertake is constrained by the cost of capital (k), which is defined by the following investment supply function: k= 6+ 0.8 M The initial investment and rate of return for each country (i.e. the investment demand schedule) is listed below in order of decreasing rate of return. Internal Rate of Return (IRR) Country Initial Investment (M) ($ million) (%) 16.0 South Africa 3.8 Kenya France 1.3 15.0 2.4 13.0 Germany Ethiopia 3.1 11.0 1.9 9.0 A. Plot the investment supply function and the investment demand schedule on the graph below. B. Determine the optimal level of investment and the corresponding cost of capital for the firm. Also indicate the countries in which CCC should invest.

The Costa Coffee Company (for short CCC) is anticipating a major expansion of its franchised coffee outlets into Europe and African countries. The investment opportunities available to the company involve rates of return and initial investment amounts that differ because of differences in operating costs and consumer demand in the countries involved. The total investment (M) that CCC can undertake is constrained by the cost of capital (k), which is defined by the following investment supply function: k= 6+ 0.8 M The initial investment and rate of return for each country (i.e. the investment demand schedule) is listed below in order of decreasing rate of return. Internal Rate of Return (IRR) Country Initial Investment (M) ($ million) (%) 16.0 South Africa 3.8 Kenya France 1.3 15.0 2.4 13.0 Germany Ethiopia 3.1 11.0 1.9 9.0 A. Plot the investment supply function and the investment demand schedule on the graph below. B. Determine the optimal level of investment and the corresponding cost of capital for the firm. Also indicate the countries in which CCC should invest.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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