Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 11, Problem 10PS
Economic rents Thanks to acquisition of a key patent, your company now has exclusive production rights for barkelgassers (BGs) in North America. Production facilities for 200,000 BGs per year will require a $25 million immediate capital expenditure. Production costs are estimated at $65 per BG. The BG marketing manager is confident that all 200,000 units can be sold for $100 per unit (in real terms) until the patent runs out five years hence. After that the marketing manager hasn’t a clue about what the selling price will be. What is the
- The technology for making BGs will not change. Capital and production costs will stay the same in real terms.
- Competitors know the technology and can enter as soon as the patent expires, that is, they can construct new plants in year 5 and start selling BGs in year 6.
- If your company invests immediately, full production begins after 12 months, that is, in year 1.
- There are no taxes.
- BG production facilities last 12 years. They have no salvage value at the end of their useful life.
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expansion to produce austenitic,
precipitation hardened, duplex, and
martensitic stainless steel round bars that
is expected to cost $13 million now and
another $10 million 1 year from now. If
total operating costs will be $1.2 million
per year starting 1 year from now, and the
estimated salvage value of the plant is
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company make annually in years 1
through 10 to recover its investment plus
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Chapter 11 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 11 - Economic rents True or false? a. A firm that earns...Ch. 11 - Prob. 2PSCh. 11 - Prob. 3PSCh. 11 - Prob. 4PSCh. 11 - Prob. 5PSCh. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Market prices Suppose the current price of gold is...Ch. 11 - Prob. 9PSCh. 11 - Economic rents Thanks to acquisition of a key...
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