1. Your firm's research department has estimated the income elasticity of demand for Art Deco lawn furniture to be -0.85. You have just learned that due to an upturn in the economy, consumer incomes are expected to rise by 5 percent next year. How will this event affect your ordering decision for PVC pipe, which is the main component in your furniture?
2. Kelly was promised a payment of $10,000 5 years from now in exchange for her silence so that she doesn't tell others that she saw the payee wearing look-a-like Bono shades at a U2 concert at Angel Stadium. What is the Present Value of that payment at 5% interest?
3. Sportsimpacts current annual profits are $50,000. If they anticipated 3% growth rate in profits and a long-term interest rate of 6%, estimate the Present Value of the firm.
4. Larry has been told that if he can convert enough people to P90X annually, he will be in line for the following bonuses over the course of the next 5 years:
Year 1 - $10,000
Year 2 - $15,000
Year 3 - $20,000
Year 4 - $30,000
Year 5 - $50,000
With this data, calculate the Present Value of Larry's future bonus payments at 3% interest, assuming he will achieve his enrollment targets.