# managerial economics

## Project Description:

tasks must be completed using microsoft exel.

the problems will be at the very end of the student workbooks that are available as pdf files in the multimedia section each week. make sure you do the correct problems. always do your task in excel and show your work in the spreadsheet (using excel formulas, not just entering text). i am pretty good at deciphering what you did as long as i can see all your calculations.

there are a few typos on the week 1 task.

in problem one, part f they say to change the rate of return from 12% to 14%. however the assumed rate was 9%, so you are just changing from 9% to 14%. in problem 2 they say we are in 2011, yet start a forecast at 2008 and ask you to calculate the npv in 2011. you want to calculate the npv at the start of the project which is presumably 2008.

1.
a partial income statement from center realty, inc. is shown below:
revenues revenue from sales of goods and services...............
operating costs and expenses: cost of products and services sold ............................
selling expenses ........................................................ administrative expenses ............................................ total operating costs and expenses ....................... income from operations ................................................. interest expense (corporate bonds & loans) .................. non-recurring legal expenses ........................................ income taxes ................................................................. net income.....................................................................
2011
\$53,750,000
\$26,000,000 \$5,235,000 \$4,237,000
\$35,472,000
\$18,278,000 \$875,000 \$585,000 \$10,245,000
\$6,573,000
in 2011, center realty owned and occupied an office building in downtown kansas city. the building could have been leased to other businesses for \$3,000,000 in lease income for 2011. center realty also owned undeveloped land valued at \$32,000,000. owners of center realty can earn a 9 percent rate of return on funds invested elsewhere.
a. in 2011, center realty’s total explicit costs of using market-supplied resources are \$____________________.
b. center’s total implicit costs of using owner-supplied resources equals \$_____________ in 2011.
c. total economic cost is \$_________________________. d. center’s accounting profit is \$_________________________. e. economic profit in 2011 is \$_________________________. f. the board of directors believes center’s owners can earn 14 percent, rather
than 12 percent on funds invested elsewhere. at a 14 percent rate of return, economic profit in 2011 is \$_________________________.
chapter 1: managers, profits, and markets 33
2. at the beginning of 2011, market analysts expect atlantis company, holder of a valuable patent, to earn the following stream of economic profits over the next five years. at the end of five years, atlantis will lose its patent protection, and analysts expect economic profit to be zero after five years.
expected economic year profit
2008 \$2,000,000 2009 \$3,000,000 2010 \$4,000,000 2011 \$5,000,000 2012 \$2,000,000
a. if investors apply an annual risk-adjusted discount rate of 8 percent, the value of atlantis company in 2011 is \$______________________, which is also the maximum price they would be willing to pay for atlantis.
b. if investors apply an annual risk-adjusted discount rate of 12 percent, the value of atlantis company in 2011 is \$______________________, which is also the maximum price they would be willing to pay for atlantis.
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Price Type: Negotiable

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