4.

) A firm contemplating an advertising campaign that promises to yield $120 one year from now for $100 spent now. Explain why the firm should not undertake the advertising campaign. Because of the Time Value of Money; the $120 might have a Present Value that is lower than the $100 spent now, therefore the campaign would have a negative Net Present Value and should not be undertaken. 5.) Determine which of two investment projects a manager should choose if the discount rate of the firm is 10 percent. The first project promises a profit of $100,000 in each of the next four years, while the second project promises a profit of $75,000 in each of the next six years. The second project should be undertaken as it has a higher Net Present Value as per the attached excel sheet analysis. 6.) Determine which if the two investment projects of problem 5 the manager should choose if the discount rate of the firm is 20 percent. The first project should be undertaken as it has a higher Net Present Value as per the attached excel sheet analysis. 9.) A woman managing a photocopying establishment for $25,000 per year decides to open her own duplicating place. Her revenue during the first year of operation is $120, 000, and her expenses are as follow: _______________________________________ Salaries to hired help $45,000 Supplies $15,000 Rent $10,000 Utilities $1,000 Interest on bank loan $10,000 ________________________________________ Calculate (a)the explicit costs, (b) the implicit costs (c) the business profit (d) the economic profit and (e) the normal return on investment in the business. a) Explicit Costs = $45,000 + $15,000 + $10,000 + $1,000 + $10,000 = $81,000 b) Implicit Costs = Opportunity Cost which is her salary foregone = $25,000

c) = $120,000 - $81,000 = $39,000 d) = $120,000 ($81,000 + $25,000) = $14,000 e) = $14,000 $81,000 = *17.28% * This figure is calculated assuming that the investment is $81,000 since the question does not explicitly state
the amount of the investment.