Doncouse_Jeremy_Week4

# Doncouse_Jeremy_Week4 - Jeremy Doncouse ECON202 Key...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Jeremy Doncouse ECON202 Key Questions Chapter 24 10/23/2008 4) a) R&D expenditure = \$20 million (30,000,000 - 20,000,000) / 20,000,000 = 50% Added profit = \$30 million b) 20,000,000 * .06 = 1,200,000 20,000,000 + 1,200,000 = 21,200,000 (30,000,000 - 21,200,000) / 21,200,000 = 41.5% Yes, because there is still profit to be had as the expected rate of return, 41.5%, is more than the interest-rate cost of 6%. c) R&D will continue because the expected rate of return has now increased due to a decrease in interest-rate cost. 5) Amount of Rate of Interest Profit R&D Return Rate Cost (millions) \$10 16% 8 \$1.60 20 14% 8 2.80 30 12% 8 3.60 40 10% 8 4.00 50 8% 8 4.00 60 6% 8 3.60 a) The optimal amount of R&D at 8% is \$50 million. b) At \$20 million there is still more to be gained from additional spending in R&D. As you can see from the additional column in the table at \$20 million profit is only \$2.8 million, but profit increases to \$3.6 million at \$30 in R&D and continues to increase until profit caps at \$50 million in million profit is only \$2....
View Full Document

## This note was uploaded on 03/08/2011 for the course ECON 202 taught by Professor Unknown during the Fall '08 term at Mountain State.

### Page1 / 2

Doncouse_Jeremy_Week4 - Jeremy Doncouse ECON202 Key...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online