If it has lots of capital and/or cash-on-hand stored up, it doesn’t need to worry as much about its overall assets since it’s got liquidity. 4) Examine the net present value problem illustrated on page 46. Assume the road commissioner is certain that the value of the land will increase to $1.2 million three years from now. If the bond stays stable at 3%, is the investment still a good idea? Show your work. Even if the bond stays stable at 3%, the value of the land increasing to $1.2 million dollars will not pay off. If one divides the profit that would be gained by 3 in order to analyze how much money per year would be made in increasing land value, the investment might not be worth the time because one has to keep in mind the interest on that money cannot be made back, nor does that take into account for inflation. Overall, for the current price, it is not a good buy. 5) Examining the case of LTCM on page 53, pay attention to the characterization of the Russian default as a sigma 9 event. LTCM operated for a little over 60 months. If the entire month was described as a sigma 9 event, what is the possibility of that event happening in any given month? Explain what you think might be problems in trying to estimate the likelihood of events like the Russian default. The chances of a sigma 9 default happening in LTCM on any given month depends upon the degree to which the company is trusted. An issuer will not back some organization it cannot trust. According to Png and Lehman (2007), A major for investors is the possibility that the issuer will default. Issuers, however, have better information about their own financial condition and likelihood of… Econ 6000 Of the five theories of profit presented, explain two theories that might apply to Intel. Feel free to supplement your response with information from their annual report. The annual reports demonstrate that Intel is doing quite well financially. According to Png and Lehman, Intel is the dominant manufacturer of IBM-compatible microprocessors. The ability to maximize one’s profit is key. One theory is that this success might have to do with the fact that, according to Png and Lehman, [t]he profit-maximizing scale of operation is where marginal revenue equals marginal cost. Another possibility is that game theory might play a role because the company has exacted a certain success by banking on other factors, such as a niche market with a widening customer base. According to Png and Lehman (2007), Game theory explains why competing sellers tend to cut price…sellers tend to compete on price, although collectively, they could raise profit by avoiding price competition3) Describe how the shareholder wealth-maximization model of the firm on page 8 of your text relates to the concept of net present value, introduced on page 45. How do you think this relationship affects current firm decisions? Relationships affects current firm decisions based upon horizontal boundaries. The way to calculate the Cross-Price Elasticity of Demand is the utilization of the formula of the percent change in the quantity of demand for RoboGizmo (10%) divided by the percent change in price for the iDoodad product (12.5%).