Reference no: EM131913726
BetaGo is a paper mill, which is considering to build a new factory at date t0 beside a river. The new factory costs BetaGo 800 at t0, and can generate cash flows 330 at t1 and 726 at t2. Because the new factory will pollute the river for sure, at date t0, BetaGo can invest in a new technique, which can completely eliminate any potential pollutions. (Hence, by investing in the new technique, BetaGo is sure that it will NOT pollute the river.) However, if BetaGo does not invest in the new technique at t0, it cannot invest in the new technique later. The new technique costs BetaGo 550. By law, BetaGo is fined 363 whenever it pollutes the river.
The rate of return used in this question is 10%.
(a) What is BetaGo's optimal project choice at date t0? [Hint: how many choices does BetaGo have at t0?]
Suppose that at t0, for some reasons, BetaGo has to build the new factory. BetaGo knows that if it does not invest in the new technique, it may potentially acquire GammaGo at t1, which is a pollution-removing specialist. [Hint: obviously, if BetaGo invests in the new technique, it will not acquire GammaGo.] At t0, BetaGo knows that if not acquired, GammaGo's cash flow at t2 depends on the weather at t1: if t1 is sunny (with probability 0:3), GammaGo itself generates a cash flow 605 at t2; if t1 is rainy (with probability 0:7), GammaGo itself will generate a cash flow 121. BetaGo negotiates with the GammaGo about the Merger and Acquisition deal after knowing the weather at t1.
(b) If BetaGo does not invest in the new technique at t0, and it is sunny at t1, is there a price such that BetaGo can successfully acquire GammaGo? Why? [Hint: even if BetaGo acquires GammaGo successfully at t1, it is still fined at t1.]
(c) Suppose that at t0, BetaGo knows that the price of acquiring GammaGo will be exactly GammaGo's present value at t1. Should BetaGo invest in the new technique at t0?
Why?
|
Increase private savings
: What kind of change would you suggest that we make to the tax code that would increase private savings?
|
|
How you might apply the given strategy in your everyday life
: Be sure to use specific examples. You can also explore how you might apply this strategy in your everyday life. If you did not learn anything new, explain why.
|
|
Higher standard of living
: How would a higher savings rate lead to a higher standard of living? Why or why not it be a good idea to raise the savings rate?
|
|
Income elasticity of demand for automobiles
: The income elasticity of demand for automobiles in the United States was estimated by a government agency to be between 2.5 and 3.9.
|
|
Betago knows that price of acquiring gammago
: BetaGo knows that the price of acquiring GammaGo will be exactly GammaGo's present value at t1.
|
|
Calculate the price elasticity of demand
: a) Calculate the price elasticity of demand b) Calculate the income elasticity of demand
|
|
Discuss the following statement given below
: In order to ensure a committed workforce, we must select self-motivated individuals at the recruitment stage, because it is impossible for managers to motivate
|
|
Prepare journal entries to record the issue
: On July 1, 2014, Dechow retired the bonds at 101. Prepare journal entries to record the issue and retirement of these bonds for 7/1/2007 and 7/01/14
|
|
What consolidation entry would be required for these bonds
: Several years ago Abrams, Inc., sold $1,120,000 in bonds to the public. What consolidation entry would be required for these bonds on December 31, 2012
|