Assignment: Module 1

Direction: Read and analyze each statement carefully and answer the questions on the space
provided. Submit your output in the Discussion Board not later than Friday August 20, 2020.
(Note: Instructions will be given re: groupings)
1. Ann spends Php30,000 per year on painting supplies and storage space. She recently
received two (2) job offers from a famous marketing firm – one offer was Php110,000
per year and the other was Php80,000 per year. However, she turned both jobs down to
continue a painting career. If Ann sells 25 painting per year at a price of Php8,000 each:
a. What are her accounting profits?
b. What are her economic profits?

2. The manager of Tires Incorporated is contemplating the purchase of a new automated

machine that will cost Php300,000 and has a useful life of five years. The machine will
yield (year-end) cost reduction to Automated Products of (see table 1):

Year Amount
1 50,000
2 60,000
3 75,000
4 90,000
5 90,000

a. What is the PV of the cost savings of the machine if the interest rate is 8%?
b. Should the manager purchase the machine? Yes, or No?

3. Suppose the interest rate is 10% and GMA 7 is expected to grow at a rate of 5% for the
foreseeable future. The firm’s current profits are Php200 million.

a. What is the value of this TV station (the present value of its current and future
earnings)?
 
4. Lucio Tan, a well-known business magnate has outsourced a marketing research
specialist for his firm. The said specialist has estimated that his firm’s total revenues to
be:
R(Q) = 3,000Q – 8Q2 and his
total costs to be C(Q) = 100 + 2Q2. 

a. What level of Q maximizes net benefits?

b. What is marginal benefit at this level of Q?
c. What is marginal cost at this level of Q?
 d. What is the maximum level of net benefits?
e. What is another word for net benefits in this example?

Additional questions
5. Suppose that the total benefit (TB) and total cost (TC) from a continuous activity are,
respectively given by the following equations: B(Q) = 100 + 36Q – 4Q² and C(Q) = 80 +
12Q
[Note: MB(Q) = 36 – 8Q and MC(Q) = 12].

a. Write out the equation for the net benefits.

b. What are the net benefits when Q = 1? Q = 5?
c. Write out the equation for the marginal net benefits.
d. What are the marginal net benefits when Q = 1? Q = 5?
e. What level of Q maximizes net benefits?
f. At the value of Q that maximizes net benefits, what is the value of the marginal net
benefits?

6. An owner can lease her building for $120,000 per year for three years. The explicit cost
of maintaining the building is $40,000 and the implicit cost is $55,000. All revenues are
received and costs borne, at the end of each year. If the interest rate is 5% determine
the present value of a stream of:
a. accounting profits
b. economic profits