21 Jan 4.11 Your firm has been sued for
4.11 Your firm has been sued for $3 million by a supplier for breach of contract. Your lawyers believe that there are three possible outcomes if the suit goes to trial. One, which the lawyers term highly improbable, is that your supplier will win the lawsuit and be awarded $3 million. Another, which the lawyers term unlikely, is that your supplier will win the lawsuit and be awarded $500,000. The Third, which the lawyers them likely, is that your supplier will lose the lawsuit and be awarded $0. You have to decide whether to try to settle the case. To do so you need to assign probabilities to “highly improbable, “unlikely,” and “likely.” What probabilities correspond to these statements? Going to trial will cost you $100,000 in legal fees. One of your lawyers believes that your supplier will settle for $100,000 (and you will have legal fees of $25,000). Should you settle?
Chapter 5:
Questions 5.1, 5.4, 5.6, 5.7, 5.8, 5.9, 5.10
5.1 Why is it important to distinguish between fixed and variable costs?
5.4 Your president bought two acres of land for $200,000 ten years ago. Although it is zoned for commercial use, it currently holds eight small, single-family houses. A property management firm that wants to continue leasing the eight houses has offered you $400,000 for the property. A developer wants to build a 12-story apartment building on the site and has offered $600,000. What value should you assign to the property?
5.6 Sweetwater Nursing Home has 150 beds. Its cost and volume data are as follows. Calculate its average and marginal costs for volumes ranging from 100 to 140. What patterns do you see?
Residents
Costs
80
$10,000
100
$11,000
120
$12,000
140
$13,200
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