The
SunriseSunrise
Group
(SGSG )
is an environmentally conscious organization that buys land with
the objective of preserving the natural environment.
SGSG
receives private contributions and takes no assistance from the
government. Fixed costs of operating the organization are
$ 1 comma 000 comma 000$1,000,000
per year. Variable costs of purchasing the land (including
environmental impact reports, title searches, etc.) average
$ 3 comma 000$3,000
per hectare. For the next budget year,
SGSG
expects to receive private contributions totaling
$ 19 comma 000 comma 000$19,000,000.
All contributions in excess of costs will be used to purchase
land.
Requirements
1.
How
many hectares will
SGSG
be able to purchase next year?
2.
SGSG
is considering participating in a new government program that will
provide
$ 1 comma 000$1,000
per hectare to subsidize the purchase of environmentally sensitive
land. If
SGSG
participates in this program, it estimates the organization will
lose
$ 5 comma 000 comma 000$5,000,000
in contributions from supporters who believe that accepting money
from the government is not consistent with its mission. If
SGSG
does participate in the program, and its forecasts are accurate,
how many hectares of land will it be able to purchase? On financial
considerations alone, should
SGSG
participate in the government program?
3.
SGSG
is worried that contributions may decrease by more than the
$ 5 comma 000 comma 000$5,000,000
it has estimated if it takes the subsidy. By how much can
contributions decrease for
SGSG
to be able to buy the same amount of land if it takes the
government subsidy or rejects it? (i.e., what is the point of
indifference between the two options?)