Here are the final numerical results for each section of the exam. You can use them to check your work if you do the exam for practice. If you have trouble with the problems, or don't get the answers shown here, stop by during office hours or make and appointment and we can go over them.
(a) EV of upgrade = -24M. Should not proceed.
(b) EV of hiring the consultant is 3.8M. Should do it.
K=111, L=73.12, AC=295.12.
P=20, Q=185, profit=200.
(a) P=17, Q=9, profit=153.
(b) PV of profits = $1,907.
(c) PV of CS during patent = $1,009; after the patent, price drops to 0 and Q rises to 17.5; the PV of CS after patent = $2,308 ; total PV of CS = $3,318.
(d) EV to company = -214, firm would not undertake it; inefficient: EV of CS = $498, more than enough to compensate the firm. For the firm to be willing to undertake the project, the annual profit would have to be approximately $114 higher.