Doncouse_Jeremy_Week4

Doncouse_Jeremy_Week4 - Jeremy Doncouse ECON202 Key...

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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....
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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.

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Doncouse_Jeremy_Week4 - Jeremy Doncouse ECON202 Key...

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