sol1 - FIN 300 Introduction to Managerial Finance Professor...

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FIN 300 Introduction to Managerial Finance Professor H. Wang Solutions to Problem Set #1 1. (a) The marginal benefit is 900,000 – 300,000 = $600,000 (b) The marginal cost is 600,000-250,000 = $350,000 (c) The net benefit is 600,000 – 350,000 = $250,000 (d) The net benefit to the shareholders is positive which should make them better off. Therefore, you should recommend the company replace the old machine with the new one. 2. (a) In this case the employee is being compensated for unproductive time. The company has to pay someone to take her place during her absence. Installation of a time clock that must be punched by the receptionist every time she leaves work and returns would result in either: (1) her returning on time or (2) reducing the cost to the firm by reducing her pay for the lost work. (b) The costs to the firm are in the form of opportunity costs. Money budgeted to cover the inflated costs of this project proposal is not available to fund other projects which may help to increase shareholder wealth. Make the
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This document was uploaded on 10/21/2010.

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sol1 - FIN 300 Introduction to Managerial Finance Professor...

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