1) company. If the company does well, the investor will make a 200% profit in her investment, but if the company fails, the investor will lose all her investment. That is, if the investor invests x, she will get back 3.x if the company succeeds and nothing if the company fails. The company will fail with probability 1/2 and will succeed with probability 1/2. The investor is risk-averse and has utility function u(x) = V. What fraction of her initial wealth W should she invest in this company? An investor with initial wealth W is given the opportunity to invest in a start-up

1) company. If the company does well, the investor will make a 200% profit in her investment, but if the company fails, the investor will lose all her investment. That is, if the investor invests x, she will get back 3.x if the company succeeds and nothing if the company fails. The company will fail with probability 1/2 and will succeed with probability 1/2. The investor is risk-averse and has utility function u(x) = V. What fraction of her initial wealth W should she invest in this company? An investor with initial wealth W is given the opportunity to invest in a start-up

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 7MC

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At races, your horse, White Rum, has a probability of 1/20 of coming 1st, 1/10 of coming 2nd and a probability of 1⁄4 in coming 3rd. First place pays $5,000 to the winner, second place $4,000 and third place $1,350.Hence, is it worth entering the race if it costs $1050? Your company plans to invest in a particular project. There is a 40% chance you will lose $3,000, a 45% chance you will break even, and a 15% chance you will make $5,500. Based solely on this information, what should you do? On 1st Jan 2006, a business had inventory of $19,000. During the month, sales totalled $32,500 and purchases $24,000. On 31st Jan 2006 a fire destroyed some of the inventory. The undamaged goods in inventory were valued at $11,000. The business operates with a standard gross profit margin of 30%. Based on this information, what is the cost of the inventory destroyed in the fire?
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