Consider a buying firm and a supplier negotiating terms for a contract. Suppose the Marginal Benefit to the buying firm of additional contract provisions in a contract (x) to the firm is: MB = 20,000 – 400x. Suppose the Marginal Cost to the buying firm of additional contract provision to the firm is: MC = 100x. What is the optimal number of contract provisions?
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Consider a buying firm and a supplier negotiating terms for a contract. Suppose the Marginal Benefit to the buying firm of additional contract provisions in a contract (x) to the firm is: MB = 20,000 – 400x. Suppose the Marginal Cost to the buying firm of additional contract provision to the firm is: MC = 100x. What is the optimal number of contract provisions?
Reconsider the previous question. If the maximum value (or price) of the contract that the buying firm is willing to pay for is $3,000, what would you expect the firm to do?
a) Use the spot market
b) Vertically integrate
c) Continue to contract
d) engage in holdup
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- Suppose that a firm has the option to make or buy a part. Its annual requirement is 11,000 units. A supplier is able to supply the part at $6 per unit. The firm estimates that it costs $800 to prepare the contract with the supplier. To make the part, the firm must invest $29,000 in equipment, and the firm estimates that it costs $3 per unit to make the part. COSTS MAKE OPTION BUY OPTION Fixed Cost $29,000 $800 Variable Cost $3 $6 Annual Requirement = 11,000 units 1. What is the break-even point? Round your answer to the nearest whole number. 2. What is the total cost at the break-even point? Round your answer to the nearest dollar. 3. What is the total cost for the make option? Round your answer to the nearest dollar.Your answer is partially correct. An independent contractor for a transportation company needs to determine whether she should upgrade the vehicle she currently owns or trade her vehicle in to lease a new vehicle. If she keeps her vehicle, she will need to invest in immediate upgrades that cost $5,200 and it will cost $1,300 per year to operate at the end of year that follows. She will keep the vehicle for 5 years; at the end of this period, the upgraded vehicle will have a salvage value of $3,800. Alternatively, she could trade in her vehicle to lease a new vehicle. She estimates that her current vehicle has a trade-in value of $9,800 and that there will be $4,100 due at lease signing. She further estimates that it will cost $2,900 per year to lease and operate the vehicle. The independent contractor's MARR is 11%. Compute the EUAC of both the upgrade and lease alternatives using the insider perspective. Click here to access the TVM Factor Table Calculator. 1943.56 EUAC(keep): $…Which is the correct answer for the question below. Some popular reality television programs follow people who buy the contents of abandoned storage lockers at public auctions. In most cases, several storage lockers are sold in sequence during a particular auction. Occasionally, one of the buyers will purposefully bid much more than the expected value of a particular storage locker in order to intimidate the other bidders. What is a plausible explanation for these excessive bids? A. The excessive bids may be rational if they occur during the last auction of the day. B. The bidder is trying to establish a first-mover advantage, but only if they occur during the first auction of the day. C. The buyer is trying to establish a reputation that may affect the outcome of later auctions. D. The excessive bids represent a form of tacit collusion among the buyers.
- Ellen is a leading comedian in the USA. A movie producing company and a TV network both want exclusive rights to her latest comedy series. The TV network is willing to pay a single lump sum, but if she signed with the movie company, the sum she receives will depend on how the market responds to her series. The network is willing to pay a flat $900,000-00. The movie company is prepared to pay $200,000-00, $1,001, 000-00, and $3,000,000-00 for a ‘Minimal Hit’, ‘Average Hit’, and ‘Massive Hit’, respectively. The statisticians are forecasting a 30% probability of a minimal hit, 60% for an average hit, and a 10% for massive hit. Required: a) Construct a decision tree of the above situation clearly identifying the decision and chance nodes. b) What are the expected payoffs for each decision and what would be your recommendation to Ellen? c) If Ellen had the relevant information on all the possibilities, what would be her expected payoff? d) What price would you recommend she pays to acquire…Adriana Alvarado has decided to purchase a personal computer. She has narrowed the choices to two: Drantex and Confiar. Both brands have the same processing speed, 6.4 gigabytes of hard-disk capacity, two USB ports, and a DVDRW drive, and each comes with the same basic software support package. Both come from mail-order companies with good reputations. The selling price for each is identical. After some review, Adriana discovers that the cost of operating and maintaining Drantex over a 3-year period is estimated to be $300. For Confiar, the operating and maintenance cost is $600. The sales agent for Drantex emphasized the lower operating and maintenance costs. The agent for Confiar, however, emphasized the service reputation of the product and the faster delivery time (Confiar can be purchased and delivered 1 week sooner than Drantex). Based on all the information, Adriana has decided to buy Confiar. What is the total product purchased by Adriana?A store owner must decide whether to build a small or a large facility at a new location. Demand at a location can be either small or large, which probabilities estimated to be 0.4 and 0.6, respectively. If small facility is built and demand proves to be high, the manager may choose not to expand (payoff=P235,000) or to expand (payoff=P275,000). If a small facility is built and demand is low, there is no reason to expand and the payoff is P220,000. If a large facility is built and demand proves to be low, the choice is to do nothing (P60,000) or to stimulate demand through local advertising. The response to advertising may be either modest or sizable, with their probabilities estimated to be 0.3 and 0.7, respectively. If it is modest, the payoff grows to P230,000 if the response is sizable. Finally, if a large facility is built and demand turns out to be high, the payoff is P900,000.a.) Draw a decision tree.b.) Determine the expected payoff for each decision and event node.c.)…
- company wants to issue a 15-year Bond with $1,000 face value and an 8% Annual coupon. the bond can be sold to investors for $1,010 per Bond but will incur transaction cost of $15 per Bond if the company tax rate is 21%. what is the after-tax cost of debt financing to the firm?Dorika is a leading comedian in Zambia. A movie producing company and a TV network both want exclusive rights to her latest comedy series. The TV network is willing to pay a single lump sum, but if she signed with the movie company, the sum she receives will depend on how the market responds to her series. The network is willing to pay a flat K900,000-00. The movie company is prepared to pay K200,000-00, K1,001000-00, and K3,000,000-00 for a ‘Minimal Hit’, ‘Average Hit’, and ‘Massive Hit’, respectively. The statisticians are forecasting a 30% probability of a minimalhit, 60% for an average hit, and a 10% for massive hit. Required: a) Construct a decision tree of the above situation clearly identifying the decision and chance nodes.l b) What are the expected payoffs for each decision and your recommendation to Dorika? c) If Dorika had the relevant information on all the possibilities, what would be her expected payoff d) What price would you recommend he pays to acquire the additional…It is the beginning of September and you have been offered the following deal to go heli-skiing. If you pick the first week in January and pay for your vacation now, you can get a week of heli-skiing for $1500. However, if you cannot ski because the helicopters cannot fly due to bad weather, there is no snow, or you get sick, you do not get a refund. There is a 25% probability that you will not be able to ski. If you wait until the last minute and go only if you know that the conditions are perfect and you are well, the vacation will cost $4000. You estimate that the pleasure you get from heli-skiing is worth $6300 per week to you (if you had to pay any more than that, you would choose not to go). If your cost of capital is 12% per year, should you book ahead or wait and why? (A decision tree is needed in the answer)
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