7. Another example of opportunity cost is a company's cost of capital. Suppose a manufacturer wants to add

microwave ovens to its product line. To do this, it must invest $500,000 in new equipment.


Besides the original investment, the company estimates it would spend $200,000 per year on production

costs for labor and materials. It also estimates that it could sell about $225,000 worth of microwave ovens

each year. Would it benefit the company to manufacture the microwave ovens if it could earn 10 percent

interest by purchasing U.S. Treasury bonds with the $500,000? Explain your answer.

Answer:

You should invest in US bonds because you will be able to earn a higher return than if you build and sell microwaves.

Explanation:

alternative 1, build and sell microwave ovens:

initial outlay = $500,000

net cash flow per year = $225,000 - $200,000 = $25,000

alternative 2, invest in US securities:

investment = $500,000

net cash flow per year = $500,000 x 10% = $50,000

Opportunity costs are the benefits lost or extra costs resulting from choosing one activity or investment over another.

If you choose to build and sell microwaves, you will not be able to invest in bonds, and therefore, your net income will decrease by $25,000 - $50,000 = -$25,000.

Instead, if you invest in bonds and not microwaves, your net income will increase by $50,000 - $25,000 = $25,000.

You should invest in US bonds because you will be able to earn a higher return than if you build and sell microwaves.

alternative 1, build and sell microwave ovens:

initial outlay = $500,000

So,

net cash flow per year = $225,000 - $200,000 = $25,000

now

alternative 2, invest in US securities:

investment = $500,000

net cash flow per year = $500,000 x 10% = $50,000

In the case when  you choose to build and sell microwaves, you will not be able to invest in bonds, and therefore, your net income will decrease by $25,000 - $50,000

= -$25,000.

Now

Instead, if you invest in bonds and not microwaves, your net income will increase by $50,000 - $25,000

= $25,000.

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A type of investment that gives a person a share of ownership in a company
is a
A. savings account
O B. bond
O c. stock
O D. hedge fund

A copyright protects a company that uses an original author's work without permission. (6 points)

True
False

Part A
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The expected rate of return on Happy Dog Soap's stock over the next year is ---------.

The expected rate of return on Black Sheep Broadcasting's stock over the next year is------.

A regional automobile dealership sent out fliers to prospective customers indicating that they had already won one of three different​ prizes: an automobile valued at ​$28 comma 000​, a ​$100 gas​ card, or a ​$5 shopping card. To claim his or her​ prize, a prospective customer needed to present the flier at the​ dealership's showroom. The fine print on the back of the flier listed the probabilities of winning. The chance of winning the car was 1 out of 31 comma 248​, the chance of winning the gas card was 1 out of 31 comma 248 comma and the chance of winning the shopping card was 31 comma 246 out of 31 comma 248. Complete parts​ (a) through​ (c).