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FIN 321 F2015

HW 1 (Due by 9/29/2015) Needs to be in my hands by 4:15pm on 9/29/15

Credit will only be given for answers with full work shown. Homework needs to be done in an organized manor with answers clearly labeled.

1. Determine which of the two investment projects a manager should choose if the discount rate of the firm is 10%. The first project promises a profit of $100,000 in each of the next four years, while the second project promises a profit of $75,000 in each of the next six years.

The second project should be undertaken as it has a higher Net Present Value as per the attached excel sheet analysis.

2. Changes in markets and inputs are very important to managers, evaluate the impact to hot dogs (pork) if,

a. The price of hamburgers increase

b. A disease spreads through the farms where pigs are raised

c. A new breed of pig is developed that can grow much faster than traditional variants.

d. Medical research shows hamburgers have less cholesterol than hot dogs

e. A direct subsidy on each pig raised to farmers raising pigs

f. The birth rate of the population is increasing at 6% per year

g. Income increases

3. You manage a resort and are considering installing one of two different vending machines, Soda or Candy. The net cash flow for each machine stays the same for each of the four years that it lasts. Key information about each machine is below. Cash flows and probabilities are matched on top of each other.

Soda

Purchase price: $10,000

Salvage Value: $0

Expected Net Cash flow in each of the next 4 years: 6000,5000,4000

Probability of Occurrence: .25 .50 .25

Candy

Purchase price: $11,000

Salvage Value: $0

Expected Net Cash flow in each of the next 4 years: 7000,5000,4000

Probability of Occurrence: .25 .50 .25

The current risk free rate is 10%. The lender uses the below table to assign an additional risk premium to loans to the resort.

Standard Deviation Risk Premium

$0-999 0%

1000-1999 4%

2000-2999 10%

3000-3999 20%

Prepare a recommendation as to which machine to install at the resort. Hint- Several things need to be done to make this recommendation.

4. Use the information in each scenario alone to answer each question.

a. What is the marginal revenue of a firm that sells a product at the price of $15 and the price elasticity of demand for the product is -2?

b. What is the price elasticity of demand of a firm that sells a product for $20 and marginal revenue is $12?

c. Use the following demand function to determine the revenue maximizing price and quantity, Q=2500-5.5P.

5. A specific McDonald’s franchise owner is looking at elasticities of Big Macs. E(p)= 2 (Price), E(i)=1 (Income), E(mt)=1.5 (m=Big Mac, t= Taco). The franchise owner would like to increase the price of Big Macs by 6%. The owner read an economic report saying incomes will grow by 4% next year and due to a strong marketing campaign by Taco Bell, the price of Tacos will fall by 2%.

a. If the franchise owner currently sells 1,200 Big Macs a day, how many Big Macs a day can the owner expect to sell?

b. If the owner wants to keep units sold the same at 1,200 per day, by what percentage must the owner change the price of Big Macs?

6. Excel Regression Analysis

Use Excel to carry out the required tasks. Print out your tables, results, etc.

1. Transfer the data from the table below into Excel

Year	Sales Rev. (Y)	Advertising (X1)
1	44	10
2	40	9
3	42	11
4	46	12
5	48	11
6	52	12
7	54	13
8	58	13
9	56	14
10	60	15

2. Run a regression on the data, there is a tool in Excel that can do it for you. Use the help function if you need help.

3. Perform three different statistical tests or equations with the data provided.

4. Comment on the data.

5. Add the quality control column to your original table.

Year	Sales Rev. (Y)	Advertising (X1)	Quality Control (X2)
1	44	10	3
2	40	9	4
3	42	11	3
4	46	12	3
5	48	11	4
6	52	12	5
7	54	13	6
8	58	13	7
9	56	14	7
10	60	15	8

6. Run a multiple regression, nearly the same process as above.

7. Perform three different statistical tests or equations with the data provided.

8. Comment on the data

9. What other variables could help make this regression even more valuable?

7. Sierra Nevada Brewing Company experienced the following monthly sales (in thousands of barrels) during 2014:

Jan.	Feb.	Mar.	Apr.	May	June
100	92	112	108	116	116

a.	Develop 2-month moving average forecasts for March through July.
b.	Develop 4-month moving average forecasts for May through July.
c.	Develop forecasts for February through July using the exponential smoothing method (with w = .5). Begin by assuming .