Decision D6, which has three possible choices (X, Y, or Z), must be made in year 3 of a 6-year study period in order to maximize E(PW). Using an MARR of 18% per year, the investment required in year 3, and the estimated cash flows for years 4 through 6, determine which decision should be made in year 3. D6 Y Z High Low High Low High Low

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
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Decision D6, which has three possible choices (X, Y, or Z), must be made in year 3 of a 6-year study period in order to maximize E(PW).
Using an MARR of 18% per year, the investment required in year 3, and the estimated cash flows for years 4 through 6,
determine which decision should be made in year 3.
D6
X
Y
Z
High (X)
Low (X)
High (Y)
Low (Y)
High
High (Z)
Low (Z)
Low
High
Low
High
Investment, Cash Flow, (Year Cash Flow, $1000
Year 3
3)
(Year 4)
3
4
$-260,000
$50
$40
$30
$30
$190
$-30
Low
$-52,000
$-250,000
The present worth of X is $
The present worth of Y is $
The present worth of Z is $
Select decision branch Y
Cash Flow,
$1000 (Year 5)
5
$50
$30
$40
$30
$170
$-30
Cash Flow, $1000
(Year 6)
6
$50
$20
$50
$30
$150
$-30
Outcome
Probability
0.72
0.28
0.45
0.55
0.7
0.3
Transcribed Image Text:Decision D6, which has three possible choices (X, Y, or Z), must be made in year 3 of a 6-year study period in order to maximize E(PW). Using an MARR of 18% per year, the investment required in year 3, and the estimated cash flows for years 4 through 6, determine which decision should be made in year 3. D6 X Y Z High (X) Low (X) High (Y) Low (Y) High High (Z) Low (Z) Low High Low High Investment, Cash Flow, (Year Cash Flow, $1000 Year 3 3) (Year 4) 3 4 $-260,000 $50 $40 $30 $30 $190 $-30 Low $-52,000 $-250,000 The present worth of X is $ The present worth of Y is $ The present worth of Z is $ Select decision branch Y Cash Flow, $1000 (Year 5) 5 $50 $30 $40 $30 $170 $-30 Cash Flow, $1000 (Year 6) 6 $50 $20 $50 $30 $150 $-30 Outcome Probability 0.72 0.28 0.45 0.55 0.7 0.3
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