Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 6, Problem 25PAA
To determine

Duration of years of contract between HG and FF

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Techstreet.com is a small web design business that provides services for two main types of websites: brochure sites and e-commerce sites. One package involves an up-front payment of $90,000 and monthly payments of 1.4¢ per “hit.” Kathy Cutler has a new eBay franchise and is considering the e-commerce package. She expects to have at least 6000 hits per month, and hopes that 1.5% of the hits will result in a sale. If the average income from sales (after fees and expenses) is $150, what rate of return per month will Kathy realize if she uses the website for 2 years?
HomeGrown is a small restaurant that specializes in serving local fruits, vegetables, and meats. The company has chosen to enter into a long-term relationship with Family Farms, a local farming operation. The two parties have decided to enter into a long-term contract, where Family Farms will supply produce to HomeGrown at specified prices and volume each year. Before signing a contract, HomeGrown is trying to decide how long the contract should be. It estimates that each year the contract covers saves the restaurant $1,000 in bargaining and opportunism costs. However, each year the contract covers also requires more legal fees. HomeGrown estimates that the number of hours required from lawyers, L, has a quadratic relationship with the number of years on the contract, so that L = Y2, where Y is the number of years for the contract. If HomeGrown’s lawyers charge $100 per hour, how long should the contract be?
Gerry likes driving small cars and buys nearly identical ones whenever the old one needs replacing. Typically, he trades in his old car for a new one costing about $15,000. A new car warranty covers all repair costs above standard maintenance (standard maintenance costs are constant over the life of the car) for the first two years. After that, his records show an average repair expense (over standard maintenance) of $2600 in the third year (at the end of the year), increasing by 50 percent per year thereafter. If a 30 percent declining-balance depreciation rate is used to estimate salvage values and interest is 8 percent, how often should Gerry get a new car? Click the icon view the table of compound interest factors for discrete compounding periods when i = 8%. Gerry should get a new car every years, which has the V EAC of s (Round to the nearest whole number as needed)
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