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Quiz 13 :

Market Structures Iii: Oligopoly

Quiz 13 :

Market Structures Iii: Oligopoly

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CORPORATE FINANCE Describe the three ways in which corporations acquire funds for investment.
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Raising investment:
Corporation raises investment in the following three ways:
• Issuing stocks: Firms raise investment through issuing stocks. The stock holders are the owners of the company who receive dividends from the net profit.
• Reinvestment: Stockholders may reinvest the profit in the firm, which is also known as retained income.• Borrowings: Firms can borrow money from the bank for the long-term and for issuing bonds. Bond is the agreement that states that the firm will repay the borrowed amount with the fixed rate of interest at a given period of time.

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PRESENT VALUE OF AN ANNUITY Suppose you are hired by your state government to determine the profitability of a lottery offering a grand prize of $10 million paid out in equal annual installments over 20 years. Show how to calculate the cost to the state of paying out such a prize. Assume payments are made at the end of each year.
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Cost of payment:
When the prize is disbursed in equal annual installments over 20 years, then the cost of payment can be calculated by using the following formula:
img …… (1)• Annual installment is $500,000
• Number of years are 20.
• Interest rate is 10 percent per annum.
Substitute the respective values in Equation (1) to calculate the cost of payment.
img Hence, the cost of payment is
img .

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Login to www.cengagebrain.com and access the Global Economic Watch to do this exercise. Global Economic Watch Go to the Global Economic Crisis Resource Center. Select Global Issues in Context. In the Basic Search box at the top of the page, enter the phrase "Whose Concept Was It, Anyway." On the Results page, go to the Global Viewpoints Section. Click on the link for the July 11, 2010, column "Whose Concept Was It Anyway?." Which outcome would benefit the economy more, Jane Wyler having a patent on all reusable dry-cleaning bags or Rick Siegel developing a cheaper reusable bag?
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Patents place restrictions in markets on an individual's ideas or products. For example, there is a patent on the air-powered pogo stick; this patent prohibits additional United States producers of air-powered pogo sticks. These patents attempt to protect the intellectual creativity and property of producers. In the case with reusable dry cleaning bags, a producer of a polypropylene bag flusters the producer of a cotton bag. In this case, however, a patent on the reusable dry cleaning bag may inhibit progress and leave consumers with only one, less favorable option. If the polypropylene bag were introduced, it would present a cheaper, potentially better product into the market. Thus, consumers would have better options and be better off.

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SECURITIES EXCHANGES What role do securities exchanges play in financing corporations?
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OPTIMAL INVESTMENT Review Exhibit 1 in this chapter. If the operators of the golf course revised their revenue estimates so that each cart is expected to earn $250 less, how many carts would they buy at an interest rate of 8 percent? How many would they buy if the interest rate is 3 percent? img
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DISCOUNTING In many states with lotteries, people can take their winnings in a single, discounted, lump-sum payment or in a series of annual payments for 20 or 30 years. What factors should a winner consider in determining how to take the money?
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MARKET FOR LOANABLE FUNDS Using the demand-supply for loanable funds diagram, show the effect on the market interest rate of each of the following: a. An increase in the purchase price of capital b. An increase in the productivity of capital c. A shift in preferences toward present consumption and away from future consumption
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PRESENT VALUE Calculate the present value of each of the following future payments. a. A $10,000 lump sum received 1 year from now if the market interest rate is 8 percent b. A $10,000 lump sum received 2 years from now if the market interest rate is 10 percent c. A $1,000 lump sum received 3 years from now if the market interest rate is 5 percent d. A $25,000 lump sum received 1 year from now if the market interest rate is 12 percent e. A $25,000 lump sum received 1 year from now if the market interest rate is 10 percent f. A perpetuity of $500 per year if the market interest rate is 6 percent
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Role of Time Complete the following sentences with a word or a phrase: a. If Bryan values present consumption more than future consumption, he has a __________. b. The reward to households for forgoing present consumption is ______. c. Producing capital goods rather than producing final goods is known as ___________.
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Why Interest Rates Differ At any given time, a range of interest rates prevails in the economy. What are some factors that contribute to differences among interest rates?
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CONSUMPTION, SAVING, AND TIME Explain why the supply of loanable funds curve slopes upward to the right.
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PRESENT VALUE OF AN ANNUITY Why is $10,000 a close approximation of the price of an annuity that pays $1,000 each year for 30 years at 10 percent annual interest?
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Case Study: The Value of a Good Idea-Intellectual Property Many who use pirated software and illegal downloads of music and movies believe their actions are harmless. Identify some downsides for individuals and the economy of violating intellectual property rights.
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PRESENT VALUE OF AN INCOME STREAM Suppose the market interest rate is 10 percent. Would you be willing to lend $10,000 if you were guaranteed to receive $1,000 at the end of each of the next 12 years plus a $5,000 payment 15 years from now? Why or why not?
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ENTREPRENEURSHIP What entrepreneurial idea do you have? How would your idea contribute to the economy?
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Login to www.cengagebrain.com and access the Global Economic Watch to do this exercise. Global Economic Watch Go to the Global Economic Crisis Resource Center. Select Global Issues in Context. In the Basic Search box at the top of the page, enter the term "initial public offering." Read about an IPO within the two most recent years. How much money was raised? For what will the money be used?
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