Connect Access Card for Managerial Econnomics
9th Edition
ISBN: 9781259354335
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Question
Chapter 1, Problem 11PAA
To determine
To explain:
The rate at which profit will grow and whether it is reasonable.
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After graduation, you face a choice. One option is to work for a multinational consulting firm and earn a starting salary (benefits included) of $40,000. The other option is
to use $7,000 in savings to start your own consulting firm. You could earn an interest return of 7 percent on your savings. You choose to start your own consulting firm. At
the end of the first year, you add up all of your expenses and revenues. Your total includes $10,000 in rent, $1,000 in office supplies, $24,000 for office staff, and $3,500
in telephone expenses.
Explicit costs include all costs for which direct payments are made Rent ($10,000), office supplies ($1,000), staff salaries ($24,000), and telephone ($3,500) = $
Implicit costs include opportunity costs: foregone wages ($40,000), and foregone interest payments ($7,000x7%) = $
Suppose, that you have now operated your consulting firm for a year. At the end of the first year, your total revenues are
$78,000
Your accounting profit is $ Your economic…
After graduation, you face a choice. One option is to work for a multinational consulting firm and earn a starting salary (benefits included) of
$40,000. The other option is to use $6,000 in savings to start your own consulting firm. You could earn an interest return of 5 percent on your
savings. You choose to start your own consulting firm. At the end of the first year, you add up all of your expenses and revenues. Your total
includes $9,000 in rent, $850 in office supplies, $18,000 for office staff, and $3,500 in telephone expenses.
Your explicit costs are $
Your implicit costs are $
You have recently learned that the company where you work is being sold for $1,000,000. The company's income statement indicates next year's profits of $30,000, which have yet to be paid out as dividends. Assuming the company will remain a "going concern" indefinitely and the interest rate will remain constant at 7%, at what (constant) rate does the owner believe that profits will grow?
(Hint: the price the owner was willing to pay is the present value of the firm's future cash flows)
Group of answer choices
6%
5%
4%
4.5%
Chapter 1 Solutions
Connect Access Card for Managerial Econnomics
Ch. 1 - Prob. 1CACQCh. 1 - What is the maximum amount you would pay for an...Ch. 1 - Prob. 3CACQCh. 1 - Prob. 4CACQCh. 1 - Prob. 5CACQCh. 1 - Prob. 6CACQCh. 1 - Prob. 7CACQCh. 1 - Prob. 8CACQCh. 1 - Prob. 9CACQCh. 1 - Prob. 10CACQ
Ch. 1 - Prob. 11PAACh. 1 - Prob. 12PAACh. 1 - Prob. 13PAACh. 1 - Prob. 14PAACh. 1 - Prob. 15PAACh. 1 - As a marketing manager for one of the worlds...Ch. 1 - Prob. 17PAACh. 1 - Prob. 18PAACh. 1 - Prob. 19PAACh. 1 - Prob. 20PAACh. 1 - Prob. 21PAACh. 1 - Prob. 22PAACh. 1 - Prob. 23PAACh. 1 - Prob. 24PAA
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