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a) A beauty product company is developing a new fragrance. There is 50% probability that consumers will love the new product, in this case the annual sales will be 1 million bottles. There is a 40% probability the consumers will find the smell acceptable and annual sales will be 200,000 bottles. With10% probability consumers will find the smell unusual and annual sales will be only 50,000 bottles. The selling price is £38 and the variable cost is £8 per bottle. Fixed production costs are £1 million per year and depreciation is £1.2 million per year. Assume that the tax rate is 40%. What are the expected annual incremental cash flows for the new fragrance?
b) Information Systems Ltd is planning to issue 10-year bonds with £1,000 face value. The market rate for such bonds (yield) is 8.125%. Assume that coupon payments will be semi-annual. The firm is deciding between issuing an 8% coupon bond or a zero- coupon bond. The company needs to raise £1 million.
i) What will be the price of the 8% coupon bonds? How many coupon bonds would have to be issued?
ii) What will be the price of the zero-coupon bonds? How many zero-coupon bonds will have to be issued?
c) You know that the return of ordinary shares of ABC company reacts to macroeconomic information 1.6 times more than the return of the market. If the risk-free rate of return is 4% and the market risk premium is 6%, what is ABC's cost of equity?
Using the estimates from question #4, what is the price elasticity of demand? Is demand elastic or inelastic? What is the income elasticity of demand? Based on this value, what type of good is this product (normal, inferior, etc.)?
Formulate this as an assignment problem that minimizes the sum of the numeric pref- erences of all drivers.
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Suppose that the government decides to impose an excise tax of $80 per motorcycle on producers in this market. What will be the number of motorcycles sold in this market once this tax is imposed? Given the tax described in part (d), what will be th..
As China's economic success is celebrated by the Chinese, it is often criticized by the rest of the world. What are some of the economic reasons.
Pre-existing Conditions: Insurance companies do not like to cover pre-existing conditions without being able to rate the premium because they know.
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Compare the equilibrium price and quantity of consumer loans before and after the Truth in Lending Simplification Act.
determine the two equal deposits the first deposit required now and the second deposit at the end of year 6 so that you
Explain why a policy like this might persist even if it was unpopular with the majority of voters.
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