Afua Adipa’s laptop has been giving her a lot of trouble. It is four years old and in the last six months, the hard drive has crashed frequently, causing her to lose data. She takes her laptop to a service center, where she is told that her hard drive has become unstable, leading to crashes and data loss. The analyst recommends that she invest in a portable hard drive and back up her data frequently. Alternatively, she could buy a new laptop. The cost of recovering lost data is $80 per session. A portable hard drive costs $150. A new laptop costs $550.Afua decides to buy a new laptop, arguing that it isn’t that much more expensive than a portable hard drive. Comment on her reasoning.

You are an economist for the Vanda-Laye Corporation, which produces and distributes outdoor cooking supplies. The company has come under new ownership and management and will be undergoing changes in its product lines and operating structure. As an economist, your responsibilities include examining the market factors that affect success or failure of a product, including the supply and demand for the product, market conditions, and the behavior of competitors with similar products.

The new owners are evaluating the operating structure, and you have two possible alternatives. One alternative requires a high level of investment in fixed costs compared to the other alternative. Jorge, your supervisor, has assigned you the task of evaluating the two alternatives.

Assume that the company has no debt. Regardless of the alternative selected, market conditions will require the selling price of the product to be $3.45 per unit. The details for each alternative are given in the table.

Jorge has asked you to provide detailed responses to the following questions:

How does CVP analysis help management in the planning stage of a new business? How does CVP analysis assist the decision makers of an existing business?

What is the break-even quantity for each of the investment alternatives, calculated using an algebraic approach? Complete the tables for each alternative using the Microsoft Excel Template given below and indicate the break-even points. Using Microsoft Excel, graph the relevant data, showing the break-even points and the profit levels for each alternative. Explain the differences between the two alternatives.

What is the degree of operating leverage (DOL) for each alternative at 90,000 units?

What is the significance of different DOLs using this example?

What does the return on equity (ROE) ratio tell management? How is it used in the decision-making process?

What is the ROE under each alternative at an output level of 124,000 for Alternative 1 and 60,000 for Alternative 2? (As the company has no debt, the formula for ROE becomes profit/assets. Use this formula.) Explain the reason for and significance of your answers.

Which alternative would you recommend to the company? Explain the pros and cons of each alternative and the reasons for your selection.

Creating an advertising campaign requires an understanding of the target market your campaign will try to reach. It is also important to consider how different media options can help your campaign meet its goals. Since resources are always limited, you will have to decide which media options should be prioritized and which are relatively less important.

Imagine that you are a media planner for a national food company that is launching a new line of meal packages called Dinner's Done. Each Dinner's Done package includes all the ingredients needed for a healthy, easy-to-prepare, homemade meal that serves a family of four.

The primary target market for Dinners Done will be families with a size of close to four members, significant time constraints that make convenience a priority, and a strong interest in healthy foods, or at least healthier food than the fast-food alternatives.

Your assignment is to create a three-month, multi-media campaign that will deliver both high frequency and engagement with the target market for Dinner's Done. Although the campaign will include some combination of television advertising, online advertising, and print advertising, the company needs to prioritize one of these options.

In an essay:

Recommend an advertising medium (either television, online, or print) that you believe would be most effective and cost-efficient in reaching the target market for Dinner's Done. Explain the reasoning behind your choice.

Explain how you would use the medium you chose to help build awareness of and interest in Dinner's Done.

A. Mary Graham has worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She expects to generate revenues during the first year of $2 million. Salaries paid to her employees are expected to total $1.5 million. Operating expenses (i.e. rent, supplies, and utility services) are expected to total $250,000. To begin the business, Mary must borrow $500,000 from her bank at an interest rate of 15%. Capital equipment will cost Mary $50,000. At the end of one year, the value of this equipment will be $30,000, even though the depreciation for tax purposes is only $5,000 during the first year.

(a) Determine the accounting profit for this venture. Show your calculations.

(b) Determine the economic profit for this venture. Show your calculations.

(c) Which of the costs of this firm are explicit, and which are implicit costs. 

B. A local restaurant owner recently purchased a liquor license issued by the state for $90,000. This license can be transferred or sold to another party. If the owner returns the license to the state only $75,000 is refundable. After selling alcoholic beverages for about one year, the restaurant owner realized that she was losing dinner customers and that her profitable restaurant business was turning into a noisy, unprofitable bar. Subsequently, she spent about $8,000 placing advertisements, in various newspapers and restaurant magazines, across the state offering to sell the license for $80,000. After a long wait, she finally received one offer to purchase her license for $77,000. Carefully identifying the sunk costs, would you recommend that she accept the $77,000 offer?