If the Rhine Company ignores the possibility that other firms may enter its market, it should set a price of $10,000 for its product, which is a power tool. But if it does so, other firms will begin to enter the market. During the next two years it will earn $4 million per year, but in the following two years it will earn $1 million per year. On the other hand, if it sets a price of $7,000, it will earn $2.5 million in each of the next four years because no entrants will appear. If the interest rate is 10 percent, should the Rhine Company set a price of $7,000 or $10,000? a. NPV $8.4M for $10,000 price b. NPV $10.0M for $10,000 price c. NPV $7.9M for $7,000 price d. NPV $10.0M for $7,000 price
If the Rhine Company ignores the possibility that other firms may enter its market, it should set a price of $10,000 for its product, which is a power tool. But if it does so, other firms will begin to enter the market. During the next two years it will earn $4 million per year, but in the following two years it will earn $1 million per year. On the other hand, if it sets a price of $7,000, it will earn $2.5 million in each of the next four years because no entrants will appear. If the interest rate is 10 percent, should the Rhine Company set a price of $7,000 or $10,000? a. NPV $8.4M for $10,000 price b. NPV $10.0M for $10,000 price c. NPV $7.9M for $7,000 price d. NPV $10.0M for $7,000 price
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![If the Rhine Company ignores the possibility that other firms may enter its market, it should set a price of $10,000 for its product, which is a power tool. But if
it does so, other firms will begin to enter the market. During the next two years it will earn $4 million per year, but in the following two years it will earn $1
million per year. On the other hand, if it sets a price of $7,000, it will earn $2.5 million in each of the next four years because no entrants will appear.
If the interest rate is 10 percent, should the Rhine Company set a price of $7,000 or $10,000?
a. NPV $8.4M for $10,000 price
b. NPV $10.0M for $10,000 price
c. NPV $7.9M for $7,000 price
d. NPV $10.0M for $7,000 price](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6a57b43a-8622-4253-b36f-09f28818a68a%2Fd4c96255-5b4f-4737-9bf7-7c95c28e7f56%2Fnw0bu99.png&w=3840&q=75)
Transcribed Image Text:If the Rhine Company ignores the possibility that other firms may enter its market, it should set a price of $10,000 for its product, which is a power tool. But if
it does so, other firms will begin to enter the market. During the next two years it will earn $4 million per year, but in the following two years it will earn $1
million per year. On the other hand, if it sets a price of $7,000, it will earn $2.5 million in each of the next four years because no entrants will appear.
If the interest rate is 10 percent, should the Rhine Company set a price of $7,000 or $10,000?
a. NPV $8.4M for $10,000 price
b. NPV $10.0M for $10,000 price
c. NPV $7.9M for $7,000 price
d. NPV $10.0M for $7,000 price
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