WWS 300 Lecture Notes - Lecture 10: Hyperbolic Discounting, 2-Step Garage

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periwinkleraven715

5 Mar 2020

School

Princeton University

Department

Woodrow Wilson School

Course

WWS 300

Professor

Marc Fleurbaey

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Document Summary

Tuesday next week is a review session. Tuesday evening at 7 pm is another review session in the same room as lecture. H is how much investment you make in education. First choose the income stream by labor, production and education decisions: maximize budget (net present value) unless there are other considerations (leisure, social status, family duties, borrowing constraints, etc. ) Second, choose the financial strategy by saving or borrowing (this doesn"t move the budget line, as the net present value of a financial investment is zero) If in step 1 there are other considerations, make the choice with the foresight of choice made in step 2. Income stream means the income you get. Slide: high vs low elasticity of substitution. It is the elasticity of c1/c0 to the mrs (which is equal to relative prices at the optimum. So, it captures the sensitivity of the composition of the bundle to the relative prices.

Related Questions

***Need response by Friday evening or Saturday at the latest!!! These are the details. That's all the instructions that came with the assignment. I'm not sure what else to post. I've got several responses requesting for details. This is it! I need the number portion completed where it says assignment. Please and thank you! This is my 4th time posting. No one has helped me. I followed all the 2 suggestions from the previous folks who offered pointers and still nothing. Someone please help! :(

Overview of the module requires that you run a simulation over an 18-year period, and that you analyze the outcome of the decisions you make at each decision point. In this course, we will be using the MIT Solar Power Pricing Simulation. Read the following introduction to the SunPower case: The Industry Evolution Management Flight Simulator portrays the growth and competition of firms as an industry evolves. Playing the role of chief executive for one of the firms in the industry, you make key decisions involving pricing, investment and marketing in order to succeed in the marketplace. This version of the simulator has been customized to portray the solar power industry, specifically SunPower and other manufacturers of photovoltaic panels (PVs). While historically the cost of electricity from PV panels has limited them to niche applications, there is massive potential for growth in the market if solar power could become a viable alternative to traditional sources of electricity. In the simulator, your job is to maximize SunPower's cumulative profit over a period of eighteen years. To do this, you make pricing and investment decisions each simulated time period. As a young company with a new innovation, you will start the game with a technology that you hope stays proprietary. In theory you can reap the benefits of technological advancements from the rest of the industry while spreading your advancements to them. In addition, you (or your administrator) have the option of setting several other competitive and market scenarios, including the sources and rates of learning, the strength of knowledge spillovers, entry of new competitors, and external incentives that help to drive consumers towards using solar power. You will receive periodic reports including your income statement and industry data. You need to select your strategies based on those reports, your understanding of the underlying industry structure, and your best judgment about how your competitor and customers may respond. Though the model has been carefully calibrated and tested, it is not designed to predict the future or exactly match the history and special circumstances of SunPower. Rather, it is used to illustrate competitive dynamics important not only in the photovoltaic panel industry but in other contexts you may face. Instead of merely "beating the game," focus on understanding the underlying industry structure so you can develop robust, successful strategies. *** Source: Sterman, J. (2014). Eclipsing the competition: The Solar PV industry simulation. Forio. Retrieved on November 23, 2014 from http://forio.com/simulation/solar-test/index.htm#page=market_research Be sure to review the SunPower case study, as it will provide you with background and context for the simulation: http://forio.com/simulation/solar-test/downloads/SunPower-Henderson.pdf Then, visit the simulation here: http://forio.com/simulation/solar-test/index.htm#page=market_research At the landing page, click on âPlay as an INDIVIDUAL.â Then, choose a Screen ID and click âSubmit.â Familiarize yourself with the simulation. This will require that you get an in-depth understanding of the terminology used in the simulation, as well as the pricing and cost structure of the product. As you begin this simulation (Year 1), your market share is only 2.40%. Your role with the company is to expand your companyâs market share over the multi-year period of operations â while recognizing the highest possible cumulative profit. To do this, you must make favorable pricing decisions, and you must ensure that you are improving your product while simultaneously lowering unit costs. Product improvements are determined by the % of revenue allocated to process improvement (i.e., technological advancement = lower unit costs).

**Helpful link: Should you need to brush up on financial analysis, the following presentation provides a very good overview of financial statement analysis: http://vrpacioli.loyola.edu/ac102/chapter17/chapter17.ppt

**This is the piece below I need help with! Not the paper just the number portion of this assignment.

**Assignment Run the simulation, entering the following data into the simulation for each of four decision points (NOTE: Do not change the assumptions displayed in the âSettingsâ tab): 1) Decision 1: For Years 2008-2012

a) Pricing â Manual

b) Module Price - $0.15

c) Revenue to Process Improvement â 5%

d) Years to Advance â 5 years

2) Decision 2: For Years 2013-2017

a) Pricing â Manual

b) Module Price - $0.13

c) Revenue to Process Improvement â 5%

d) Years to Advance â 5 years 3) Decision

3: For Years 2018-2022

a) Pricing â Manual

b) Module Price - $0.11

c) Revenue to Process Improvement â 5%

d) Years to Advance â 5 years

4) Decision 4: For Years 2023-2025

a) Pricing â Manual

b) Module Price - $0.09

c) Revenue to Process Improvement â 5%

d) Years to Advance â To end At each of the four

(4) decision points above, you are required to analyze the impact of your Module Price on market share and total profits. You are also required to determine how process improvements reduce unit costs over time.

Instructions:

Be sure to copy tables and charts into your Word document to support your analysis. You may need to use Excel to edit the charts and tables.

The goal of the firm is to ____ because _____. Answer maximize shareholders' wealth; it considers all risks invest funds in real estate; the return is longer maximize shareholders' profit; it is a short term outlook closely matching management goals Mike is paying $8,000 a year on his mortgage at 6% nominal annual interest. He has 15 more years to make payments. He wants to sell his house today. The lowest [minimum] price he can sell the house without losing any money on the house would be about ___. Answer $120,000 $ 50,000 $77,698 $ 186,208 A firm's net income before tax, EBT [NIBT] (on the income statement) is affected by _____. Answer taxes interest dividends Common Stock as listed on the Balance Sheet could include which of the following? Answer A) retained earnings B) additional paid in capital over par value C) preferred capital Both A) and B) If an asset is sold for ___ than its basis, the tax effect would be ____. Answer A) more; capital gain and depreciation recapture B) less; depreciation recapture C) more; capital loss Both A) and B) The main reason for a firm to have assets is to _______. Answer generate revenue match the liabilities and equity both of the above be able to borrow money and pay its debts none of the above The only risk you would NOT have in loaning money to the United States Government (Uncle Sugar) is _____ risk. Answer liquidity maturity default A(n) ____ shows _____. Answer balance sheet; sources and uses of funds income statement; net income as of a specific date cash flow statement; how well the firm is doing relative to its competition You can compare dollars _____ because ______. Answer computed using equations; any math is always correct at any point in time; time is never a factor if they are at nominal value; that is when decisions are made only at the same point in time; dollars can be invested to earn interest There ___ a tax benefit to the company with paying preferred dividends because _______. Answer is; investors can write them off is not; investors declare them as income is; the company can use the payments as an expense is not; the company cannot use the payments as an expense XYZ issued a 6% coupon, $1,000 par, 30 year to maturity bond. It is now 6 years to maturity. What is the price of the bond if the yield to maturity [market interest rate] is 10%? Answer $1,000 $659.46 $825.79 $705.33 The valuation process can be described as ______. Answer calculating the present value of an expected future cash flow using the investor's required rate of return as the discount rate calculating the future value of an expected future cash flow using the investor's required rate of return as the discount rate amortizing the value of the asset over its holding period The ______ is the minimum required rate of return a firm must earn on its investments. Answer net present value opportunity cost of capital or weighted average cost of capital. internal rate of return gross profit margin The value of an asset is the _____ dollar price someone is willing to pay for it. Answer usual maximum minimum Companies use ____ in capital budgeting project analysis because ________. Answer accounting profit; that is the total net income after tax cash flow; that is what the owners would receive from the project and reinvest accounting profit; that is what the owners would receive from the project and reinvest after tax cash flow; that is the result of prudent accounting When borrowing money, you want to know the ____ interest rate because ____. Answer nominal; it is the easiest to find. effective; it is the true cost of borrowing risk free; that is what the government pays Fed funds; that is what you would pay the bank Cash available to pay out to the investors after the firm pays for new investments or additions to working capital is _____. Answer a statement of cash flows operating after tax cash flow free cash flow net income An organization that raises money from investors and provides financing for individuals and businesses is a ___. Answer factor federal government regulatory unit state government taxing authority financial intermediary Negatives/cons of the Net Present Value (NPV) technique include: Answer least conservative reinvestment assumption multiple rates of return for non-conventional cash flows all of the above none of the above A fixed exchange rate means a country _____. Answer can only use gold coins as money is limited in the amount of paper money it can print can print money as the economy demands Your company is considering an investment with the following expected cash flows: Initial Investment = $407,596 Operating Cash Flows = $73,428 per year Terminal Cash Flow = $11,872. The company's WACC is 11% for similar risk projects. The proposed project would have an expected life of 9 years. Your boss asks you to do the analysis. You would tell your boss this proposed project ___ because ____. Answer is acceptable; NPV is about $3,620 is acceptable; NPV is zero should be rejected; NPV is about -$5,660 [negative $5,660]. should be rejected; NPV is zero All ratios are ___ and a reason to analyze ratios is ____. Answer good; to continue to look productive good and bad; because seemingly good ratios can be masking something bad bad; to try to rework the numbers to have them look good basically irrelevant; there really is no need to analyze financial statements When analyzing financial statements, ratio analysis gives ____ and provides insight into ____. Answer very little useful information; practically nothing good practice in logical thinking; what has occurred and the logic behind it financiers something to do during slow periods; how the financier spends his time accountants a reason to provide financial statements; why accountants do what they do while at work Given: Economic State[i]: Good Average Expected Return[i]: 10% 8% Probability[i]: 30% 70% What is the Standard Deviation? Answer 3% 8.4% 0.92% 5.6% Chapter 9: XYZ has a projected project to install a new press. The expected cash revenue is $175,000 per year. Expected yearly expenses are: Operatinf costs of $50,000; Rental of $17,000; Utilities of $20,500; and Depreciation of $10,000. The tax rate is 35%. What is the expected After-Tax Operating Cash Flow for the first year? Answer $65,500 $60,375 $77,500 $97,500 A stock just paid a dividend of $1.60 per year. The dividend is expected to grow at 3% per year indefinately. Equally risky stocks offer expected rates of return of 8%. What should be the stock price? Answer 53.33 $16.00 $32.96 None of the above. A plot of the CAPM is the _____. Answer wrong thing to do Security Market Line a function showing how to calculate TVM All of the above. Derivatives are used to ___. Answer divide one number by another find old ways to do things hedge risk none of the above With the end of the Gold Standard in the 1970's, what new risk did business face in the international market? Answer Comjpetition Exchange rate Worker compensation Property taxes One of the positive aspects [pros] of a Floating Exchange Rate System is ____. Answer money can be printed as needed to support financial/economic growth no/reduced inflation economic growth is reduced as a result of reduced liquidity [lower money supply] business planning is more difficult A(n) ____ contract obligates the seller to execute the contract and the contract is executed. Answer backwards forward future option What policies did countries institute after the Great War that help lead to the Great Depression? Answer A. Mandatory military service B. Trade restrictions C. High tariffs D. Isolationism Only B., C. and D. All of the above

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WWS 300 Lecture Notes - Lecture 10: Hyperbolic Discounting, 2-Step Garage

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