ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 19P
To determine
To construct: Expected Value for next year’s discount rate.
Introduction: Cash Flow Analysis is a technique used by the company to know the overall worth of the company as well as its subsidiary or branches. Cash flow analysis helps in analyzing the company’s
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A decision has been made to perform certain repairs on the outlet works of a small dam. For a particular 36-inch gate valve, there are three available alternatives: A. Leave the valve as it is. B. Repair the valve. C. Replace the valve. If the valve is left as it is, the probability of a failure of the valve seats, over the life of the project, is 60%; the probability of failure of the valve stem is 50%; and of failure of the valve body is 40%. If the valve is repaired, the probability of a failure of the seats, over the life of the project, is 40%; of failure of the stem is 30%; and of failure of the body is 20%. If the valve is replaced, the probability of a failure of the seats, over the life of the project, is 30%; of failure of the stem is 20%; and of failure of the body is 10%. The present worth of cost of future repairs and service disruption of a failure of the seats is $10,000; the present worth of cost of a failure of the stem is $20,000; the present worth of cost of a…
EXTRA RISK PROBLEMS
Sanck A
Sk
Expected Retun
Standand Deviatim
12
75
16
Comelation cnefficieit wth
the Market
Comelation coeficient with
Stock B
Risk fre e 2%
Expected etu on the Market 12
Standund deviation of the Market E
1. What is the expected retum on a portfolio comprised of S60o00 of Suck A and S4000 of
Sock B7
2. Whe is the Stnderd deviation of this portidio?
3. Does it make sense to combine these two in this way? Pease explain why.
4 What is the ocoefficient of variation for Stock A? What is the coefficient of variation
for Stock B?
Assume you are faced with two decision alternatives and two states of nature whose profit payoff table is shown below.
Decision Alternative
State of Nature 1
State of Nature 2
Decision 1
25
30
Decision 2
45
15
The probability of state of nature 1 is 0.4.(a) Compute the expected value of each alternative.(b) Which decision is the optimal decision?(c) Compute the expected value with perfect information.(d) Compute the expected value of perfect information.
Chapter 10 Solutions
ENGR.ECONOMIC ANALYSIS
Ch. 10 - Prob. 1QTCCh. 10 - Prob. 2QTCCh. 10 - Prob. 3QTCCh. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7P
Ch. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - Prob. 12PCh. 10 - Prob. 13PCh. 10 - Prob. 14PCh. 10 - Prob. 15PCh. 10 - Prob. 16PCh. 10 - Prob. 17PCh. 10 - Prob. 18PCh. 10 - Prob. 19PCh. 10 - Prob. 20PCh. 10 - Prob. 21PCh. 10 - Prob. 22PCh. 10 - Prob. 23PCh. 10 - Prob. 24PCh. 10 - Prob. 25PCh. 10 - Prob. 26PCh. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Prob. 29PCh. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Prob. 32PCh. 10 - Prob. 33PCh. 10 - Prob. 34PCh. 10 - Prob. 35PCh. 10 - Prob. 36PCh. 10 - Prob. 37PCh. 10 - Prob. 38PCh. 10 - Prob. 39PCh. 10 - Prob. 40PCh. 10 - Prob. 41PCh. 10 - Prob. 42PCh. 10 - Prob. 43PCh. 10 - Prob. 44PCh. 10 - Prob. 45PCh. 10 - Prob. 46PCh. 10 - Prob. 47PCh. 10 - Prob. 48PCh. 10 - Prob. 49PCh. 10 - Prob. 50PCh. 10 - Prob. 51PCh. 10 - Prob. 52PCh. 10 - Prob. 53PCh. 10 - Prob. 54PCh. 10 - Prob. 55PCh. 10 - Prob. 56PCh. 10 - Prob. 57PCh. 10 - Prob. 58PCh. 10 - Prob. 59PCh. 10 - Prob. 60PCh. 10 - Prob. 61PCh. 10 - Prob. 62PCh. 10 - Prob. 63PCh. 10 - Prob. 64PCh. 10 - Prob. 65P
Knowledge Booster
Similar questions
- 2-42 A new integrated computer system is to be installed worldwide for a major corporation. Bids on this project are being solicited, and the contract will be awarded to one of the bidders. As a part of the pro- posal for this project, bidders must specify how long the project will take. There will be a significant pen- alty for finishing late. One potential contractor de- termines that the average time to complete a project of this type is 40 weeks with a standard deviation of 5 weeks. The time required to complete this project is assumed to be normally distributed. (a) If the due date of this project is set at 40 weeks, what is the probability that the contractor will have to pay a penalty (i.e., the project will not be finished on schedule)? (b) If the due date of this project is set at 43 weeks, what is the probability that the contractor will have to pay a penalty (i.e., the project will not be finished on schedule)? (c) If the bidder wishes to set the due date in the proposal so…arrow_forwardThe demand for a product of Carolina Industries varies greatly from month to month. The probability distribution in the following table, based on the past two years of data, shows the company's monthly demand. Unit Demand Probability 300 400 500 600 0.20 0.30 0.35 0.15 (a) If the company bases monthly orders on the expected value of the monthly demand, what should Carolina's monthly order quantity be for this product? (b) Assume that each unit demanded generates $70 in revenue and that each unit ordered costs $50. How much will the company gain or lose in a month (indoitars) if it places an order based on your answer to part (a) and the actual demand for the item is 300 units?arrow_forwardAnswer for (b) & (c) Please Airtight Manufacturing produces plastic cases that utility companies buy to protect electronic components on utility poles from weather damage. (a) The protective case currently used by utility companies has a 0.045 probability of cracking or breaking in any given year. When a protective case cracks or breaks, the utility company incurs a $800 expense to replace the case. What is the expected value of the utility company’s repair costs per protective case? Show your work. (b) Airtight has recently developed a stronger material for its protective case. The use of this stronger material reduces the case’s probability of cracking or breaking, and serves as a differentiating factor for estimating this product’s VTC. Use the product-needs matrix described in the course to classify this differentiating factor. What type of product characteristic is it? What type of customer need does it satisfy? Justify your answers. (c) If this stronger material enables…arrow_forward
- It's not -10 or 10arrow_forwardPlease no written by hand A bank has two $10 million one-year loans. Possible outcomes are as follows: Outcome Neither loan defaults Loan 1 defaults, loan 2 does not default Loan 2 defaults, loan 1 does not default Both loans default Probablity 97.5% 1.25% 1.25% 0.00%.If a default occurs, losses can use normal distribution with mean $5 million and standard deviation $1 million to approximate. If a loan does not default, a profit of $0.2 million is made. (a). What is the VaR for of each project when the confidence level (a). What is the VaR for of each project when the confidence level is 99%? (b). What is the expected shortfall of each project when the confidence level is 99%? (c). What is the VaR for a portfolio consisting of the two investments when the confidence level is 99%?) (d). What is the expected shortfall for a portfolio consisting of the two investments when the confidence level is 99%?arrow_forwardA company spends $14.7 million dollars for an office building. Over what period should the cost be expensed? O After $14.7 million in revenue is recognized. O When the $14.7 million is expended in cash. O Over the useful life of the building. O All in the first year. ttempts: 0 of 1 used Submit Aarrow_forward
- An estate agent advertises its houses in two media; Daily Graphic and Ghanaian Times. The agent believes that there is a relationship between the sales S and the amounts spent on the two advertising media. The relationship is given by; where, d is the amount spent in Daily Graphic and g is the amount spent in Ghanaian Times. The estate’s agent fee is 12½% and this includes the cost of adverting. If the agent has planned to spend only 200 thousand Ghana Cedis on advertisement, show how it should be allocated between the two media in order to maximize net profit.arrow_forwardABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but maysometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, thesupplier may take 7 days.Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also anopportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450. If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-days-worth of inventory. (B) Economic Order Quantity4. What is the annual demand for the boxes of candles?5. How much is the carrying cost of one box of candles for one year?6. What is the economic order quantity for the boxes of candles? Round UP.7. How many orders will be made per year on average if the economic order quantity was followed? Round off totwo decimal places.8. How much…arrow_forwardDecision Alternative Up S₁ Stable s₂ Down S3 Investment A, d₁ Investment B, d₂ Investment C, d3 Probabilities Profit Investment A, d₂ Investment B, d₂ Investment C, dz 100 70 Economic Conditions 45 0.95 thousand thousand thousand 0.85 0.65 0.45 Profit Decision Maker A $70,000 $45,000 $20,000 20 (a) Using the expected value approach, which decision is preferred? E(d₂) $ 68 E(d₂) = $ 56.25 E(d3) = $45 The expected value approach recommends Investment A, d. ✔ Indifference Probability (p) 45 45 (b) For the lottery having a payoff of $100,000 with probability p and $0 with probability (1-p), two decision makers expressed the following indifference probabilities. Find the most preferred decision for each decision maker using the expected utility approach. 0.15 6.95 X Decision Maker A 0.6 Decision Maker B 0.35 0.2 Expected Utilities 0 20 45 0.20 Calculate the expected utility for each of the decision alternatives for each of the decision makers. (Assign a utility of 10 to the payoff of…arrow_forward
- 80. Gridiron University is a private university. A successful alumnus has recently donated $1,000,000 to Gridiron for the purpose of funding a "center for the study of sports ethics." This donation is condi- tional upon the university raising matching funds within the next 12 months. The university administra- tors estimate that they have 50% chance of raising the additional money. How should this donation be ac- counted for? a. As a temporarily restricted support. b. As unrestricted support. c. As a refundable advance. d. As a memorandum entry reported in the footnotes.arrow_forward2. Airtight Manufacturing produces plastic cases that utility companies buy to protect electronic components on utility poles from weather damage. (a) The protective case currently used by utility companies has a 0.045 probability of cracking or breaking in any given year. When a protective case cracks or breaks, the utility company incurs a $800 expense to replace the case. What is the expected value of the utility company’s repair costs per protective case? Show your work. (b) Airtight has recently developed a stronger material for its protective case. The use of this stronger material reduces the case’s probability of cracking or breaking and serves as a differentiating factor for estimating this product’s VTC. Use the product-needs matrix described in the course to classify this differentiating factor. What type of product characteristic is it? What type of customer need does it satisfy? Justify your answers. (c) If this stronger material enables Airtight’s new protective…arrow_forwardA foundation is holding a fund-raising campaign in a form of a raffle. A raffle ticket costs 120 php and there are 5,000 tickets to be sold. The ticket drawn in the raffle will win for its holder the price of 100,000 php. Compute the expected profit or loss for joining this raffle. A. -120 php B. -88.98php C. -99.98php D. -100phparrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning