Answer: $9091
Explanation:
The real value of the savings if the price level increases by 6 percent for the year will be calculated thus:
Real Value = Nominal Value × CPI of previous year / CPI of current year
The CPI of current year will be:
= 100 + (100 × 10/100)
= 110%
Then, the real value will be:
= $10000 × 100/ 110
= $9091
XYZ is considering two alternatives: repairing a damaged van or selling it as is and buying a comparable used van. Information related to this decision is provided below: Initial cost of the damaged van $30,000 Accumulated depreciation to date on van $18,000 Salvage value of the damaged van $ 1,000 Cost to repair damaged van $ 5,000 Cost of a comparable used van $10,000 Based on the information above, XYZ would be financially better off: Group of answer choices
Answer:
d. $4.000 by repairing the damaged van.
Explanation:
Options are "a. $1,000 by buying the comparable van. b. $2,000 by buying the comparable van c. $2.000 by repairing the damaged van. d. $4.000 by repairing the damaged van."
Details Amount
Cost of comparable used Van $10,000
Less: Repair cost $5,000
Less: Salvage value before repair after crash $1,000
Benefit from repairing damaged van $4,000
A portfolio with a level of systematic risk that is the same as that of the market has a beta that is equal to one. less than zero. equal to zero. less than the beta of the
Answer:
equal to one.
Explanation:
Systemic risk are risk that are inherent in the economy. They cannot be diversified away. They are also known as market risk. examples of this risk include recession, inflation, and high interest rates. Investors should seek compensation for systemic risk. Systemic risk is measured by beta. The higher beta is, the higher the systemic risk and the higher the compensation demanded for by investors
The market has a beta of one. If a portfolio has the same level of systematic risk that is the same as that of the market, its beta would be equal to 1.
If the portfolio is less risky than the market, its beta would be less than one
If the portfolio is more risky than the market, its beta would be greater than one
We Are the World is an importing company that specializes in importing hand-made arts and crafts from crafters and artisans around the world. The company has about $4 million worth of stock outstanding. Due to its desire to avoid double taxation, it is structured so that its individual shareholders pay taxes on all of the company's income. The shareholders report the flow-through of income and losses on their personal tax returns and are assessed at their individual tax rates. We Are the World is a(n):_____.
a. limited liability company (LLC).
b. C corporation.
c. S corporation.
d. G corporation.
e. investment trust.
Answer:
c. S corporation.
Explanation:
S corporations that are elected for passing out the corporate income, losses, deductions and credits via to the shareholders for the federal tax motive. It is responsible for tax on specific gains and the passive income for the entity level
Also the shareholders could reported the flow via income and the losses on the personal income tax returns and can be assess at individual tax rates
So, the option c is correct
If the nominal interest rate is 5% and the inflation rate is 3%, what is the real interest rate? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Answer:
The real interest rate is "3%".
Explanation:
Given:
Nominal interest rate,
n = 5%
Inflation rate,
i = 3%
As we know,
⇒ [tex](1+n) = (1+r)\times (1+i)[/tex]
or,
⇒ [tex](1+r)=\frac{(1+n)}{(1+i)}[/tex]
By substituting the values, we get
[tex](1+r)=\frac{1+0.05}{1+0.03}[/tex]
[tex](1+r)=\frac{1.05}{1.03}[/tex]
[tex](1+r)=1.029[/tex]
[tex]r=1.029-1[/tex]
[tex]=0.029[/tex]
or,
[tex]=3[/tex]%
Last year, a Walmart store in Nebraska had annual sales of $11,390,000, with an average dollar stock amount for the year of $2,149,000. What was the stock turnover for the year at the store in Nebraska? How would the store manager determine if this was a "good" rate of turnover?
Answer:
See below
Explanation:
1. With regards to the information above, stock turnover is computed as cost of goods sold divided by average stock.
Stock turnover = Cost of goods sold / Average stock
Cost of goods sold/Cost of sales = $11,390,000
Average stock = $2,149,000
Then,
Stock turnover = $11,390,000 / $2,149,000
Stock turnover = 5.30 times
Therefore, the stock turnover for the year at the store in Nebraska is 5.30 times
2. The store manager would determine if it was a good rate of turnover if it increases compare to previous stock turnover. Rate of turnover shows the rate or number of times at which a company can sell and replace its stock of goods within a year.
Explain how an enterprise can use functional level strategy to improve 1) efficiency, 2) quality, and 3) customer responsiveness.
Answer:
Explanation:
Functional level strategies can improve a company’s ability to attain superior efficiency, quality, innovation, and customer responsiveness by reducing costs and improving production by ways such as economies of scale, learning effects, marketing strategies or efficient information technologies.
The income from operations and the amount of invested assets in each division of Beck Industries are as follows: Income from Operations Invested Assets Retail Division $5,400,000 $30,000,000 Commercial Division 6,250,000 25,000,000 Internet Division 1,800,000 12,000,000 a. Compute the return on investment for each division.
Answer:
Retail Division = 18 %
Commercial Division = 25 %
Internet Division = 15 %
Explanation:
Return on Investment = Net Income / Assets employed x 100
therefore,
Retail Division = $5,400,000 / $30,000,000 x 100
= 18 %
Commercial Division = $6,250,000 / $25,000,000 x 100
= 25 %
Internet Division = $1,800,000 / $12,000,000 x 100
= 15 %
Current operating income for Bay Area Cycles Co. is $26,000. Selling price per unit is $100, the contribution margin ratio is 25% and fixed expense is $104,000. Required: 1. Calculate Bay Area Cycle's breakeven point in units and total sales dollars. Break-even units Break-even dollars 2. Calculate Bay Area Cycle's margin of safety and margin of safety ratio.
Answer:
Results are below.
Explanation:
First, we need to calculate the unitary contribution margin:
Unitary contribution margin= 100*0.25
Unitary contribution margin= $25
Now, we can calculate the break-even point in units and dollars:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 104,000 / 25
Break-even point in units= 4,160
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 104,000 / 0.25
Break-even point (dollars)= $416,000
Finally, the margin of safety in dollars as a ratio:
Current sales= (26,000 + 104,000) / 25
Current sales= 5,200
Margin of safety= (current sales level - break-even point)
Margin of safety= (5,200*100 - 416,000)
Margin of safety= $104,000
Margin of safety ratio= (current sales level - break-even point)/current sales level
Margin of safety ratio= 104,000 / 520,000
Margin of safety ratio= 0.2 = 20%
A mutual fund sold $58 million of assets during the year and purchased $64 million in assets. If the average daily assets of the fund were $216 million, what was the fund turnover
Answer: 26.85%
Explanation:
Based on the information given in the question, the fund turnover will be calculated thus:
Funds sold = $58 Million
Average Daily Assets = $216 Million
Fund Turnover = Fund Sold / Average Daily Assets
Fund Turnover = $58 Million / $216 million
= 26.85%
A thief uses a bag of sand to replace a gold statue that sits on a weight sensitive alarmed pedestal. The bag of sand and the statue have exactly the same volume 1.75 L. Assume that the mass of the bag is negligible. Calculate the mass of each object.
Answer:
No, the thief didn't set off the alarm. As the mass of the gold statue and the bag of sand is different, the alarm clock will start ringing once the statue is replaced with the bag of sand. Thus, the thief screwed up the operation.
No, the robber did not activate the alarm. The alarm clock will begin to sound as soon as the gold statue is swapped out for the sand bag because of the differences in mass. As a result, the theft went wrong.
What is the role of density in sand and the statue?The density of a substance quantifies how much mass is contained in each unit volume of that substance.
From this definition, we can infer that it is an intrinsic parameter, meaning that its value is unaffected by the size of the sample of the material under consideration.
Therefore, No, the thief didn't set off the alarm. The alarm clock will begin to sound as soon as the gold statue is swapped out for the sand bag because of the differences in mass. As a result, the theft went wrong.
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If fixed costs are $288,000, the unit selling price is $75, and the unit variable costs are $49, the old and new break-even sales (units), respectively, if the unit selling price increases by $5 are a.3,840 units and 11,077 units b.11,077 units and 3,840 units c.11,077 units and 9,290 units d.5,878 units and 8,790 units
Answer:
Results are below.
Explanation:
Giving the following information:
Fixed costs= $288,000
Selling price= $75
Unitary variable costs= $49
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 288,000 / (75 - 49)
Break-even point in units= 11,077
Now, if the selling price is $80:
Break-even point in units= 288,000 / (80 - 49)
Break-even point in units= 9,290
What is Company XYZ's intrinsic equity value using the WACC as the discount rate and assuming the terminal value is based on the EBITDA exit multiple
Answer:
$315,198
Explanation:
WACC = [ Equity / Total value ] * cost of equity + [ Debt / Total value ] * Cost of debt.
WACC = 11.5%
Exit multiple = Total cash outflow / Total cash inflow
Exit multiple = $120,000 / 36,000 = 3.3x
EBITDA of the company is $178,412.
What is the end behavior of the graph of the polynomial function f(x)
Answer:
f(x) approaches infinity as x approaches infinity
Explanation:
Given
[tex]f(x) = 3x^6 + 30x^5+ 75x^4[/tex]
Required
The end behavior of the graph
We have:
[tex]f(x) = 3x^6 + 30x^5+ 75x^4[/tex]
The above expression implies that:
[tex]f(x) = 3x^6 + 30x^5+ 75x^4[/tex]
The leading coefficient is 3 (3 is positive)
And the degree of the polynomial is 6 (6 is even)
When the leading coefficient is positive and the degree is even; the end behavior of the function is:
[tex]x \to \infty[/tex]
[tex]f(x) \to \infty[/tex]
Louisville, Kentucky is debating a new business ordinance that will address sidewalks in its city. Members of the Louisville city council do not need to concern themselves with which of the following issues?
a. Environmental standards
b. Federally mandated restrictive covenants
c. Local taxes
d. Local zoning
e. Building codes
Answer: c. Local taxes
Explanation:
The city will have to take into account the relevant environmental standards when constructing the sidewalks. They will also have to factor in federally restrictive mandated covenants for legality.
Local zoning laws will also need to be taken into account so that the sidewalk is not built where it is not meant to be and building codes would be important as well. They however, do not need to be concerned about local taxes because the city will not charge itself tax for city maintenance work.
The council members do not need to be concerned about the local taxes.
Local taxes are the levies that are paid by the people living in the community to the local government.In this case, the issue is about Louisville, Kentucky addressing its sidewalks in the city, therefore the local taxes won't be an issue since it's not a local issue.The source of concern will be the environmental standards, Federally mandated restrictive covenants, local zoning and building codes.
Therefore, the correct option is C.
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g The declaration, record, and payment dates in connection with a cash dividend of $59,400 on a corporation's common stock are July 9, August 31, and October 1. Journalize the entries required on each date.
Answer:
Dr Retained earnings $59,400
Cr Dividend payable $59,400
August 31 No entry
October 1
Dr Dividend payable $59,400
Cr Cash $59,400
Explanation:
Preparation of the journal entries required on each date.
July 9
Dr Retained earnings $59,400
Cr Dividend payable $59,400
August 31 No entry
October 1
Dr Dividend payable $59,400
Cr Cash $59,400
The ending inventory of finished goods has a total cost of $9,000 and consists of 600 units. If the overhead applied to these goods is $3,000, and the overhead rate is 75% of direct labor, how much direct materials cost was incurred in producing these units
1. A time study analyst timed an assembly operation for 30 cycles, and then computed the average time per cycle, which was 18.75 minutes. The analyst assigned a performance rating of .96, and decided that an appropriate allowance was 15%. Assume the allowance factor is based on the workday. Determine the following: observed time (OT), the normal time (NT), and the standard time (ST)
Answer:
1. observed time = 18.75 minutes.
2. Normal time = 18 minutes
3. Standard time = 21.17 minutes
Explanation:
1. The observed time will be equal to the average time per cycle, which was given in the question as 18.75 min. Therefore, observed time = 18.75 minutes.
2. The normal time will be:
= Average Time x Performance Rating
= 18.75 x 0.96
= 18 minutes
3. The standard time will be:
= Normal time × 1/(1 - 15%)
= Normal time × 1/(1 - 0.15)
= 18 × 1/0.85
= 18 × 1.176
= 21.17 minutes
Eric receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: A low-inflation scenario and a high- inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Eric's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Nominal Interest After-Tax After-Tax (Percent) Rate Rate Nominal Interest Rate Real Interest (Percent) (Percent) (Percent) (Percent)2.0 4.5 7.0 4.5Compared with higher inflation rates, a lower inflation rate will_________ nominal interest income. This tends to_________ the after-tax real interest rate when the government taxes saving, thereby________ the quantity of investment in the economy and________ the economy's long-run growth rate.
Solution :
Given :
The bonds offer a [tex]\text{real interest rate}[/tex] of 4.5% per year
Tax rate = 10% = 0.10
Inflation rate = 2
[tex]\text{Nominal interest rate}[/tex] = [tex]\text{real interest rate}[/tex] + [tex]\text{inflation rate}[/tex]
[tex]\text{Nominal interest rate}[/tex] = 2 + 4.5
= 6.5
[tex]\text{After tax nominal rate}[/tex] = [tex]\text{Nominal interest rate}[/tex] [tex]$\times (1-\text{tax rate})$[/tex]
[tex]\text{After tax nominal interest rate}[/tex] = [tex]$6.5 \times (1-0.10)$[/tex]
[tex]$=6.5 \times 0.90$[/tex]
= 5.85
After tax real interest rate = [tex]\text{after tax nominal rate}[/tex] - [tex]\text{inflation rate}[/tex]
= 5.85 - 2.0
= 3.85
[tex]\text{Inflation rate}[/tex] = 7.0
[tex]\text{Real interest rate = 4.5}[/tex]
[tex]\text{Nominal interest rate}[/tex] = [tex]\text{real interest rate}[/tex] + [tex]\text{inflation rate}[/tex]
= 7 + 4.5
= 11.5
[tex]\text{After tax nominal interest rate}[/tex] = [tex]\text{Nominal interest rate}[/tex] [tex]$\times (1-\text{tax rate })$[/tex]
[tex]$=11.5 \times (1 - 0.10)$[/tex]
[tex]$=11.5 \times 0.90$[/tex]
= 10.35
[tex]\text{After tax nominal interest rate}[/tex] = 11.5 x (1 - 0.10)
= 11.5 x 0.90
= 10.35
[tex]\text{After tax nominal interest rate}[/tex] = [tex]\text{after tax nominal rate}[/tex] - [tex]\text{inflation rate}[/tex]
= 10.35 - 7.0
= 3.35
Putting all the value in table :
[tex]\text{Inflation rate}[/tex] Real interest Nominal interest After tax nominal After tax
rate rate interest rate interest rate
2.0 4.5 6.5 5.85 3.85
7.0 4.5 11.5 10.35 3.35
Comparing with the [tex]\text{higher inflation rate}[/tex], a [tex]\text{lower inflation rate}[/tex] will increase the after after tax real interest rate when the government taxes nominal interest income. This tends to encourage saving, thereby increase the quantity of investment in the economy and the increase the economy's long-run growth rate.
Larned Corporation recorded the following transactions for the just completed month.
$76,000 in raw materials were purchased on account.
$74,000 in raw materials were used in production. Of this amount, $65,000 was for direct materials and the remainder was for indirect materials.
Total labor wages of $123,000 were paid in cash. Of this amount, $101,500 was for direct labor and the remainder was for indirect labor.
Depreciation of $195,000 was incurred on factory equipment.
Required:
Record the above transactions in journal entries.
Answer and Explanation:
The journal entries are shown below:
Raw materials inventory $76,000
To Accounts payable $76,000
(being the raw material purchased on account)
Work in process inventory $65,000
Manufacturing overhead $9,000
To Raw materials inventory $74,000
(Being the work in process and overhead is recorded)
Work in process inventory $101,500
Manufacturing overhead $21,500
To Cash $123,000
(being cash paid is recorded)
Manufacturing overhead $195,000
To Accumulated depreciation-Equipment $195,000
(being the manufacturing overhead is recorded)
In comparing the deviations of returns, which one of the following assets has historically had the largest standard deviation of annual returns?
a. large company stocks
b. long-term corporate bonds
c. long-term government bonds
d. U.S. Treasury bills
Answer:
A
Explanation:
An increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events,a. the demand for tires decreases and the supply of tires increases.b. the demand for tires is unaffected and the supply of tires decreases.c. the demand for tires is unaffected and the supply of tires increases.d. None of the above is necessarily correct. What should be the demand and supply?
Answer:
d
the demand for tires is unaffected and effect on the supply of tires could increase, decrease, or stay the same.
Explanation:
An increase in the price of rubber would lead to an increase in the cost of producing tires. Rubber is an input required in the production of tires.
As a result of the increase in the cost of rubber, the supply of rubber would decrease. This would lead to a leftward shift of the supply curve. Equilibrium price would increase and quantity would decrease
As a result of the advance in technology, there would be an increase in the supply of tires. As a result, the supply curve shifts outward. Equilibrium price would decrease and quantity would increase
Taking these wo effects together, the demand for tires is unaffected and effect on the supply of tire is indeterminate
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 177,000 kilometers during a year, the average operating cost is 12.3 cents per kilometer. If a truck is driven only 118,000 kilometers during a year, the average operating cost increases to 15.5 cents per kilometer.
Required:
a. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation.
b. Express the variable and fixed costs in the form Y = a + bX.
c. If a truck were driven 147,000 kilometers during a year, what total cost would you expect to be incurred?
rt, a $0.73 per share cash dividend was declared by the board of directors for it common stock. On 12/31, the date of declaration, there were 98,000 shares authorized, 59,000 shares issued, and 8,000 Treasury shares. On the date of the dividend declaration, what amount will Walmart record into their dividend account
Answer:
$36,792
Explanation:
Missing word "At Walmart, the board of directors declared a $0.73"
Outstanding stockholder = Issued stockholder - Treasury stock
Outstanding stockholder = 59,000 shares - 8,600 shares
Outstanding stockholder = 50,400 shares
Amount of Dividend = Declared per share cash dividend * Outstanding stockholder
Amount of Dividend = 50,400 shares * $0.73
Amount of Dividend = $36,792
So therefore, on the date of the dividend declaration, $36,792 shall be recorded by Walmart into their dividend account.
On January 1, 2020, Cheyenne Company purchased 40% of Santos Corporation 465,000 outstanding shares of common stock at a total cost of $13 per share. On October 25, Santos declared and paid a cash dividend of $0.40 per share. On December 31, Santos reported a net income of $934,000 for the year and the market price of its common stock was $14 per share. Prepare all necessary journal entries for Mica company for 2020.
Solution :
The following journal entry will be prepared to record the transactions
Date General Journal Debt($) Credit($)
Jan 1 Investment in Cheyenne Co. 2,418,000
(465,000 x 40% x $13)
Cash 2,418,000
Oct. 25 Cash (465,000 x 40% x $0.4) 74,400
Investment in Cheyenne Co. 74,400
Dec 31 Investment in Cheyenne Co. 373,600
($934,000 x 40%)
Equity income in Cheyenne Co. 373,600
Fields Company has two manufacturing departments, forming and painting. The company uses the weighted-average method of process costing. At the beginning of the month, the forming department has 25,000 units in inventory, 60% complete as to materials and 40% complete as to conversion costs. The beginning inventory cost of $60,100 consisted of $44,800 of direct materials costs and $15,300 of conversion costs. During the month, the forming department started 300,000 units. At the end of the month, the forming department had 30,000 units in ending inventory, 80% complete as to materials and 30% complete as to conversion. Units completed in the forming department are transferred to the painting department. Cost information for the forming department follows. Beginning work in process inventory$60,100 Direct materials added during the month 1,231,200 Conversion added during the month 896,700 Exercise 03-7A FIFO: Costs per EUP LO C4 Assume that Fields uses the FIFO method of process costing. 1. Calculate the equivalent units of production for the forming department. 2. Calculate the costs per equivalent unit of production for the forming departmen
Answer:
Fields Company
Forming Department
Materials Conversion
1. The equivalent units of production 304,000 294,000
2. The costs per equivalent unit $4.05 $3.05
Explanation:
a) Data and Calculations:
Units Materials Conversion
Work in Process 25,000 60% 40%
Units started 300,000
Ending WIP 30,000 80% 30%
Units completed 295,000 100% 100%
Equivalent Units:
Units Materials Conversion
Work in Process 25,000 10,000 (40%) 15,000 (60%)
Units started 300,000
Ending WIP 30,000 24,000 (80%) 9,000 (30%)
Units completed 295,000 100% 100%
Units started and
completed 270,000 270,000 270,000
Total equivalent units 304,000 294,000
Units Materials Conversion Total
Costs added during the month $1,231,200 $896,700 $2,127,900
Total equivalent units 304,000 294,000
Cost per equivalent unit $4.05 $3.05
Portfolio Expected Return An investor puts 32% of their money in Stock 1 with a 10.15% expected return, 27% of their money in Stock 2 with a 10.95% expected return and the rest in Stock 3 with an expected return of 13.55%. What is the portfolio's expected return
Answer:
the expected return of the portfolio is 11.76%
Explanation:
The computation of the expected return of the portfolio is shown below:
= Respective return × Respective weights
= 0.32 × 10.15 + 0.27 × 10.95 + 0.41 × 13.55
= 3.248% + 2.9565% + 5.5555%
= 11.76%
Hence, the expected return of the portfolio is 11.76%
The same should be considered and relevant
If the subtotal of the income statement debit column is $250,000, the subtotal of the income statement credit column is $300,000, and the total of the Statement of Retained Earnings debit column is $475,000, what is the beginning balance in Retained Earnings
Answer:
$425,000
Explanation:
Calculation to determine the beginning balance in Retained Earnings
First step is to prepare the Income Statement
Revenues $300,000
Less Expenses ($250,000)
Profit $50,000
Now let calculate the beginning balance in Retained Earnings
Using this formula
Beginning balance in Retained Earnings= Statement of Retained Earnings debit column -Income Statement Profit
Let plug in the formula
Beginning balance in Retained Earnings=$475,000-$50,000
Beginning balance in Retained Earnings=$425,000
Therefore the beginning balance in Retained Earnings is $425,000
Globalization of Market is taking place because of ___________.
Compute a three-period moving average forecast given demand for shopping carts for the last five periods. (Round all your answers to two decimal points.) Period Demand 1 58 2 54 3 60 4 53 5 63
Answer:
Computation of a Three-Period Moving Average Forecast
Period Demand 3-period moving average
1 58
2 54
3 60 57.33
4 53 55.67
5 63 58.67
Explanation:
a) Data and Calculations:
Period Demand 3-period moving average
1 58
2 54
3 60 57.33 (58 + 54 + 60)/3
4 53 55.67 (54 + 60 + 53)/3
5 63 58.67 (60 + 53 + 63)/3
b) The three-period moving average is computed by summing the demand for periods 1, 2, and 3 and dividing it by 3. The result becomes the moving average for period 3. This process is repeated by eliminating the first one and adding the next number until the end.
Arisk-neutral consumer is deciding whether to purchase a homogeneousproduct from one of two firms. One firm produces an unreliable product andthe other a reliable product. At the time of the sale, the consumer is unable todistinguish between the two firmsîproducts. From the consumerîs perspec-tive, there is an equal chance that a given firmîs product is reliable or unreli-able. The maximum amount this consumer will pay for an unreliable productis $0, while she will pay $50 for a reliable product.
a. Given this uncertainty, what is the most this consumer will pay to purchaseone unit of this product?
b. How much will this consumer be willing to pay for the product if the firmoffering the reliable product includes a warranty that will protect the con-sumer? Explain
Answer:
Uncertainty over Reliable and Unreliable Product
a. Given this uncertainty, the most this consumer will pay to purchase one unit of this product is $25
b. The amount that this consumer will be willing to pay for the product if the firm offering the reliable product includes a warranty that will protect the consumer is $50.
c. This is because the stated maximum amount that the consumer is willing to pay for the reliable product is $50. She is not prepared to spend more than this amount on the reliable product.
Explanation:
a) Data and Calculations:
Unreliable Reliable
Maximum amount the consumer will pay $0 $50
Probability of reliability 0.5 0.5
Expected amount to pay for either product $0 $25 ($50 * 0.5)
a. Given this uncertainty, the most this consumer will pay to purchase one unit of this product is $25 ($0 + $25)
