Question

The Sunrise Group (SG) is an environmentally conscious organization that buys land with the objective of preserving the natural environment. SG receives private contributions and takes no assistance from the government. Fixed costs of operating the organization are $1,000,000 per year. Variable costs of purchasing the land (including environmental impact reports, title searches, etc.) average $3,000 per hectare. For the next budget year, SG expects to receive private contributions totaling $19,000,000. All contributions in excess of costs will be used to purchase land.
REQUIRED
1. How many hectares will SG be able to purchase next year?
2. SG is considering participating in a new government program that will provide $1,000 per hectare to subsidize the purchase of environmentally sensitive land. If SG participates in this program, it estimates the organization will lose $5,000,000 in contributions from supporters who believe that accepting money from the government is not consistent with its mission. If SG does participate in the program, and its forecasts are accurate, how many hectares of land will it be able to purchase? On financial considerations alone, should SG participate in the government program?
3. SG is worried that contributions may decrease by more than the $5,000,000 it has estimated if it takes the subsidy. By how much can contributions decrease for SG to be able to buy the same amount of land if it takes the government subsidy or rejects it?


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  • CreatedJuly 31, 2015
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