Author Question: A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery ... (Read 122 times)

darbym82 · **on:** Jul 1, 2018

A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs 45,000 and is expected to increase cash flows in the first year by 25,000 and in the second year by 30,000 . The firm's current fixed costs are 9,000 and current marginal costs are 15 . The firm currently charges 18 per unit. If the interest rate is 5 then the present value of the cash flows is
a. 6,020.41
b. 51,020.41
c. -7,380.95
d. 10,000

Question 2

Amusement Park / Cola Tie-in The Six Flags Over Texas amusement part in the middle of the Dallas-Fort Worth Metroplex has a tie-in marketing campaign with Coca-Cola during the summer. In local grocery stores, some Coke cans offer 5 off admission to the park. Why does Six Flags limit these cans so that none are sold further than 20 miles from the park?

jennafosdick · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

b

Answer to Question 2

This is a price discrimination scheme trying to separate locals from tourists. Tourists do not get to go to the park as often as locals and so their demand is less elastic. Locals have many opportunities to visit the park and so their demand for additional visits over the summer is relatively elastic. The discount on the Coke can is an attempt to offer lower prices to the more elastic locals. Six Flags limits the distribution of the specially marked cans to just locals as a way to limit arbitrage.