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Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The company is considering an investment that will cost $12,000. This will allow the company to begin production of a new product. Marketing estimates that that if there is high demand, that their local market will purchase 250 units of the new product in the first quarter of production. If demand is low, only 100 units will be sold. Marketing represents a probability of 0.50 of high demand, and a probability of 0.50 of low demand. Each unit sold will earn $5.00 in profit. Based on the anticipated demand, profit per unit, and probability of those states of demand, what is the expected profit of the new product after the $12,000 initial investment is taken into account?
Transcribed Image Text:The company is considering an investment that will cost $12,000. This will allow the company to begin production of a new product. Marketing estimates that that if there is high demand, that their local market will purchase 250 units of the new product in the first quarter of production. If demand is low, only 100 units will be sold. Marketing represents a probability of 0.50 of high demand, and a probability of 0.50 of low demand. Each unit sold will earn $5.00 in profit. Based on the anticipated demand, profit per unit, and probability of those states of demand, what is the expected profit of the new product after the $12,000 initial investment is taken into account?
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