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NEW QUESTION: 1
Firms in a fragmented industry have insignificant market shares and little influence on such matters as market price and total output. A likely economic cause of this fragmentation is the existence of:
A. Low exit barriers.
B. High entry barriers.
C. Diseconomies of scale.
D. A learning curve effect.
Important diseconomies of scale may favor fragmentation. For example, small, flexible firms have an advantage when the following needs are important:quick responses to style changes, the maintenance of low overhead, customization of a diverse product line to the special requirements of particular customers, substantial creative content in the product, individualized personal service, and local contacts and image.
NEW QUESTION: 2
In order to increase production capacity, Gunning Industries is considering replacing an existing
production machine with a new technologically improved machine effective January 1, 1997. The
following information is being considered by Gunning Industries.
. The new machine would be purchased for $160,000 in cash. Shipping, installation, and testing would
cost an additional $30,000.
. The new machine is expected to increase annual sales by 20,000 units at a sales price of $40 per unit.
Incremental operating costs are comprised of $30 per unit in variable costs and total fixed costs of
$ 40,000 per year.
. The investment in the new machine will require an immediate increase in working capital of $35,000.
. Gunning uses straight-line depreciation for financial reporting and tax reporting purposes. The new
machine has an estimated useful life of five years and zero salvage value.
. Gunning is subject to a 40 percent corporate income tax rate.
Gunning uses the net present value method to analyze investments and will employ the following factors
Gunning Industries' discounted annual depreciation tax shield for the year 1997 would be:
Choice "a" is correct. $13,817 discounted annual depreciation tax shield for the year 1997.
Choices "b", "c", and "d" are incorrect based on the above Explanation:.