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Zoey just completed her BBA at VIU and has a choice between pursuing a master’s degree

Problem set # 1 – MBA504
Please make sure that you keep a copy of your assignment for your own reference. One copy for you, one copy for me!!!!
Q. 1. Zoey just completed her BBA at VIU and has a choice between pursuing a master’s degree or takeover the operation of Uncle Joe’s Bakery next door that just come for sale with the $200,000 she has to finance the master’s degree. The Listing price of the bakery is $2 million dollars. Now, how much money extra people with MBA earn over a BBA is all over the place. Some say it is $15, 30, or 40 thousand while others say it varies from $70 to 100 thousand; it all depends on the industry, luck, experience, etc. The following information is available from Uncle Joe’s Bakery:
Uncle Joe’s Bakery Aunt Ye’s Pub
Year Profit (π) in $ Profit (π) in $
2007 50,000 125,000.00
2008 52,500 134,375.00
2009 55,125
2010 57,881.25 155,287.11
2011 60,775.31 166,933.64
2012 63,814.08 179,453.67
2013 192,912.69
2014 70,355.02 207,381.14
2015 73,872.77 222,934.73
2016 77,566.41 239,654.83
2017As can be seen, the accountants had left the company with the following statements for the years profits are not reported:
Uncle Joe Bakery
Income Statement
For the period ended Dec. 31, 2013
Sales Revenue $ 93,604.00
Cost of Goods Sold $ 17,000.00
Wages Expenses $ 2,900.00
Utility expense $ 1,900.00
Rent expense $ 1,100.00
Advertising expense $ 2,200.00
Insurance expense $ 150.00
Depreciation expense $ 850.00
Interest Expense $ 500.00

Aunt Ye’s Pub
Income Statement
For the period ended Dec. 31, 2009
Sales Revenue $224,253.00
Cost of Goods Sold $51,000.00
Wages Expenses $8,700.00
Utility expense $5,700.00
Rent expense $3,300.00
Advertising expense $6,600.00
Insurance expense $450.00
Depreciation expense $2,550.00
Interest Expense $1,500.00

Assuming a discount rate of 10% and a goal to remain in business:
a) for 12 years
b) at perpetuity
1) Using the worst, the average, and the median case scenarios for each time horizon, which of the two projects is viable for Zoey?
2) Aunt Ye’s Pub is not for sale, but would not mind to entertain a partner for 20% of her business to alleviate her burden of running the business forever. Leaving aside goodwill, how much money should Zoey be offering to Aunt Ye that would be considered fair market value.
3) Does Zoey have enough money to pay Aunt Ye? If she does not, assuming perpetuity, at what interest rate should she borrow the money from the bank to pay to Aunt Ye? How much money will be bank lend Zoey given the requirement is to have 25% downpayment?
On Friday, the CEO of the giant Pens and PDA manufacturer, Daniels Inc, gave its manager, Sarah, a notice of dismissal

With the company opportunity cost of funds at 8%, Sarah used $300,000 of the company money to purchase a new equipment that has a useful life of 5 years. The machine will yield (year-end) cost reduction to the company of $50,000 in year 1, $60,000 in year 2, $75.000 in year 3 and $90,000 in years 4 and 5.

Sarah’s justification for undertaking the project is that by spending $300,000 today, the company will reduce cost by $365,000 in five years. However, the CEO did not agree with this reasoning. Using opportunity costs concept, explain to Sarah why the CEO was unhappy with her decision to purchase the machine? Show all your work.

Q.3 What is meant by the goal of ‘maximization of shareholders wealth’? Why is profit maximization, by itself, considered an inappropriate goal of the firm?

Q.4 It is estimated that over 120,000 students will apply to the top 30 MBA programs in the US next year
a. using the concept of present value and opportunity cost, explain when it is rational for an individual to pursue an MBA degree
b. What would you expect to happen to the number of applicants if the starting salaries of managers with MBA degrees remained constant but salaries of managers without such degrees increased by 15%? Why?
Q.5 You have recently learned that the company where you work is being sold for $275000. The company’s income statement indicates current profits of $10,000 which have yet to be paid out as dividends. Assuming the company will remain a “growing concern” into the infinite future and that the interest rate will remain constant at 10%, at what constant rate does the owner believe the profits will grow? Does this seem reasonable?
II Annual demand and supply for the Entronics company is given by:

QD = 15,000 + 0.5 I + 0.75A – 125P + 10Pe, and QS = -10,000 + 100P – 20Pe – 0.50Pi

where Q is the quantity per year, P is price, I is income per household, A is advertising expenditure, Pi is the price of inputs, and Pe is expectations about future prices .

a. Using the ceteris paribus assumption, interpret each coefficient estimate for a one-dollar change in each of the determinants of demand and the determinants of supply.

b. Using the ceteris paribus assumption, interpret each coefficient estimate for a one-percentage point change in each of the determinants of demand and the determinants of supply.

c. If I = $15,000 A = $400, Pe = $100 and Pi = $50, what is the demand curve? What is the supply curve?

d. Find the market equilibrium price and quantity and represent graphically the market situation.

e. What is the profit of the firm?

f. Suppose there is expectation from the part of both consumers and firms that the future price of the product will be $200 in the near future, find the new equilibrium price and quantity for the product.

g) What is the new profit of the firm? Is it higher or smaller? Why?

h. Calculate the elasticity of demand for the change in equilibrium price using both the point elasticity and the arc elasticity formula.

i. Calculate the advertising elasticity using the point elasticity formula, and interpret the result.

j. Calculate the Income elasticity using the point elasticity formula

II The following information is provided for Tony Romo’s income and expenditures.

Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 6
$3,000 4 3

a) What is Tony’s income elasticity of demand for steaks and for pizzas? Provide an interpretation of the results.

Below are some events that affect the market for wine. In each space provide a graphical illustration of the event and indicate the effects of equilibrium price and quantity. Treat each case as a separate event.

Event Graphical illustration What happens to equilibrium price and quantity and Producer and Consumer Surplus?
(i) Increase in the price of grapes; and at the same time consumers tastes and preference moves towards wine consumption

(ii) New wine producing firms join existing ones in the market ; at the same time consumers expect the price of wine to fall in the future

(iii) Improvement in technology in wine production and an decrease in income of wine consumer who generally see wine as a normal good

(iv) Government provides new subsidies for wine production and consumers income decline

provide an example of a falsifiable statement or theory in economics and discuss why this specific statement is scientific according to Popper by identifying its potential falsifiers and explaining the importance of these.

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