Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 30, Problem 7P
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To determine: The number of pounds of coffee beans should Company S must lock.
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If the Rhine Company ignores the possibility that other firms may enter its market, it should set a price of $10,000 for its product, which is a power tool. But if
it does so, other firms will begin to enter the market. During the next two years it will earn $4 million per year, but in the following two years it will earn $1
million per year. On the other hand, if it sets a price of $7,000, it will earn $2.5 million in each of the next four years because no entrants will appear.
Try various discount (interest) rates and draw a conclusion about the timing of profits
If the Rhine Company ignores the possibility that other firms may enter its market, it should set a price of $10,000 for its product, which is a power tool. But if
it does so, other firms will begin to enter the market. During the next two years it will earn $4 million per year, but in the following two years it will earn $1
million per year. On the other hand, if it sets a price of $7,000, it will earn $2.5 million in each of the next four years because no entrants will appear.
If the interest rate is 10 percent, should the Rhine Company set a price of $7,000 or $10,000?
a. NPV $8.4M for $10,000 price
b. NPV $10.0M for $10,000 price
c. NPV $7.9M for $7,000 price
d. NPV $10.0M for $7,000 price
Expo Lube is interested in producing and selling an industrial line of oil filters. Market research indicates that wholesale customers are currently willing to pay $8 for similar filters, and that Expo Lube could sell 80,000 units per year at that price.
a. If Expo Lube requires a 19 percent return on sales, what is its target cost for the proposed industrial line of filters?
b. Assume that market research reveals several of Expo Lube’s direct competitors are likely to lower the wholesale price of similar filters to $7 per unit. To remain competitive, what will Expo Lube’s target cost have to be to maintain a 19 percent return on sales?
c. At a wholesale price of $7, Expo Lube estimates that it can sell 83,100 industrial filters per year instead of 80,000 units. Assuming its target costs are attainable, how much more or less profit per year will the company earn at the $7 wholesale price compared to the initial wholesale price estimate of $8?
Chapter 30 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 30.1 - How can insurance add value to a firm?Ch. 30.1 - Prob. 2CCCh. 30.2 - Prob. 1CCCh. 30.2 - What are the potential risks associated with...Ch. 30.3 - How can firms hedge exchange rate risk?Ch. 30.3 - Prob. 2CCCh. 30.4 - How do we calculate the duration of a portfolio?Ch. 30.4 - How do firms manage interest rate risk?Ch. 30 - The William Companies (WMB) owns and operates...Ch. 30 - Genentechs main facility is located in South San...
Ch. 30 - Prob. 3PCh. 30 - Your firm faces a 9% chance of a potential loss of...Ch. 30 - BHP Billiton is the worlds largest mining firm....Ch. 30 - Prob. 6PCh. 30 - Prob. 7PCh. 30 - Prob. 9PCh. 30 - Prob. 10PCh. 30 - Prob. 11PCh. 30 - You have been hired as a risk manager for Acorn...Ch. 30 - Prob. 13PCh. 30 - Prob. 14P
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