ECON MOD 13

The New York Yankees signed pitcher Masahiro Tanaka to a​ seven-year contract. Because Mr Tanaka was under contract in Japan with the Golden​ Eagles, the Yankees paid them ​$10,000,000 to release him. Mr​ Tanaka's contract calls for payments of ​$22,000,000 per year for six years and ​$23,000,000 in year seven. Assuming a 9 percent discount rate and that Mr​ Tanaka's salary is paid​ annually, starting 12 months after the fee paid the Golden​ Eagles, the present value of the​Yankees' commitment, including the fee paid to the Golden​ Eagles, on the signing day of the contract is ​$

121,271,996.62

You are deciding whether to send several of your employees to a training session. The cost of the session is ​$20,000. You estimate that if they receive this​ training, your​ firm's after-tax operating profit will increase by ​$5,000 per year for 5 years. If your​ firm's discount rate is 7 ​percent, the net present value of the training session is _________ dollars. ​ (Round your answer to two decimal places. Enter a negative sign if your answer is a loss.​) Should you send the employees to the training​ session? Why or why​ not? A. You should send your employees to training as the net present value is positive. Your answer is correct. B. You should not send your employees to training as the cost incurred in the present period is less than your present value. C. You should not send your employees to training as the cost incurred in the present period is greater than your future value. D. You should send your employees to training as the present value of money your firm will earn as profit after-tax by the end of 5 years is positive.

500.99

If PV is the present​ value, FV is the future​ value, i is the interest​ rate, and the future value will be received in n​ years, the relationship between the present value and future value is A. PV = 1/(1+i)n ×FV. B. PV=(1+i)n ×FV. C. FV=(PV)n. D. FV=(1+i)1/n ×PV.

A

When discounting a stream of future​ payments, i. add the payments and then discount the sum. ii. discount each payment and then add the discounted values. A. Only ii is correct. B. Only i is correct. C. Neither i nor ii is correct. D. Both i and ii are correct.

A

The present value of $500,000 received at the end of 10 years at a discount rate of 8 percent is

231,596.74

The present value of ​$12,000 received at the end of the year for the next 7 years at a discount rate of 6 percent is ​ _________ ​(Round your answer to the nearest whole number​.) Now suppose that the payments are delayed for a​ year, so that the seven payments will be made at the end of the second​ year, the third​ year, and so on until the end of the eighth year. The present value of the payments now is ​ _________ ​(Round your answer to the nearest whole number​.) Why are your answers to the previous two cases​ different? A. The present value is lower when the payments are delayed for a year because payments further in the future are discounted by more than those closer to the present. B. The present value is higher when the payments are delayed for a year because payments further in the future are discounted by more than those closer to the present. C. The present value is lower when the payments are delayed for a year because payments that are closer to the present are discounted more than those in the future. D. The present value is higher when the payments are delayed for a year because payments that are closer to the present are discounted more than those in the future.

$66,989 $63,197 A

Given an annual interest rate of 4​ percent, what is the present value of receiving​ $5,000 in 2​ years? A. $4,619.23 B. ​$4,622.78 C. $4,585.45 D. $4,535.25

B

If the interest rate is 10 percent per​ year, in two years what is the future value of​ $100? A. $120.00 B. $121.00 C. $82.64 D. $80.00

B

What is the future value of​ $100 in 2 years that earns an annual interest rate of 5​ percent? A. $110.41 B. $110.25 C. $105.50 D. $102.25

B

Which of the following statements is​ correct? i. A positive salvage value from an investment increases the net present value from making an investment. ii. A negative salvage value from an investment decreases the net present value from making an investment. A. Only i is correct. B. Both i and ii are correct. C. Only ii is correct. D. Neither i nor ii is correct.

B

The net present value of an investment equals the A. present value of the cost minus the present value of future operating profits. B. future value of the cost minus the future value of the future operating profits. C. present value of future operating profits minus the present value of the cost. D. future value of the future operating profits minus the future value of the cost.

C

The present value of​ $100 to be received two years in the future with 5 percent interest rate is A. $110.25. B. $90.00. C. $90.70. D. $110.00.

C

Which of the following make it less expensive for a firm to make an input rather than buy​ it? i. Transportation costs may be lower if the firm makes the input rather than buying it. ii. A firm is likely to be more efficient in controlling the quality of inputs it​ produces, than for those it purchases. A. Neither i nor ii is correct. B. Only i is correct. C. Only ii is correct. D. Both i and ii are correct.

D

The future value of​ $100 for one year from now when the interest rate is 10 percent is the same as the future value of​ $100 for two years from now when the interest rate is 5 percent. T or F?

F

As a manager at​ BMW, you are considering leasing a plant to build batteries for your​ electric-powered BMW i3 vehicle. Suppose that​ BMW's current cost of batteries is ​$8,000 per car. You predict sales of 10,000 cars per year for this year and each of the following six years. If BMW leases the​ plant, you expect that the cost of batteries will be ​$7,800 per car. Suppose also that leasing the plant requires an immediate​ up-front lease payment of ​$10,000,000 but no further payments. At the end of the​ lease, BMW will turn the plant back to its owners. Assume that BMW will pay the cost of buying the batteries or of manufacturing them at the end of each year. If you use a discount rate of 11 percent, the net present value is now $________ Should BMW lease the​ plant? Why or why​ not? A. You should not lease the plant to produce batteries internally as the cost incurred in the present period is greater than your future value. B. You should lease the plant to produce batteries internally as the present value is positive. C. You should lease the plant to produce batteries internally as the net present value is positive. D. You should not lease the plant to produce batteries internally as the net present value is negative.

-575,607.47 D

As a manager at​ BMW, you are considering leasing a plant to build batteries for your​ electric-powered BMW i3 vehicle. Suppose that​ BMW's current cost of batteries is ​$8,000 per car. You predict sales of 10,000 cars per year for this year and each of the following six years. If BMW leases the​ plant, you expect that the cost of batteries will be ​$7,800 per car. Suppose also that leasing the plant requires an immediate​ up-front lease payment of ​$10,000,000 but no further payments. At the end of the​ lease, BMW will turn the plant back to its owners. Assume that BMW will pay the cost of buying the batteries or of manufacturing them at the end of each year. If you use a discount rate of 4 ​percent, the net present value of producing these batteries internally is ​$__________ Should BMW lease the​ plant? Why or why​ not? A. You should lease the plant to produce batteries internally as the present value is positive. B. You should not lease the plant to produce batteries internally as the cost incurred in the present period is greater than your future value. C. You should not lease the plant to produce batteries internally as the cost incurred in the present period is greater than your present value. D. You should lease the plant to produce batteries internally as the net present value is positive.

2,004,109.34 D

In order to analyze costs and benefits that are paid and received at different​ times, they must be valued at​ ________ in time as funds received or paid in the future are worth​ ________ than the same amount received or paid today. A. a single​ point; more B. different​ points; less C. different​ points; more D. a single​ point; less

D