The lease of Theme Park, Inc., is about to expire. Management must decide whether to renew the lease for another 10 years or torelocate near the site of a proposed motel. The town planning board is currently debating the merits of granting approval to the motel.A consultant has estimated the net present value of Theme Park's two alternatives under each state of nature as shown below.Suppose that the management of Theme Park, Inc., has decided that there is a 0.40 probability that the motel's application will beapproved.MotelMotelOptionsRejected$4,500,000300,000ApprovedRenew$600,000Relocate2,500,000а-1.If management uses maximum expected monetary value as the decision criterion, calculate expected monetary value for thealternatives "Renew" and "Relocate".AlternativeExpected ValueRenewRelocate

Answered: The lease of Theme Park, Inc., is about…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Grocers Inc. is considering offering a purified water service through a contract company that would locate a machine on the inside of the market store. There are two contract companies Grocers Inc. is considering, ClearWater and PureVida. ClearWater would charge an annual lease fee of $800 for set-up of the machine and for this machine, there is a utility cost of $0.10 for every gallon of water dispensed and ClearWater charges $0.05 for maintenance. For PureVida, the annual lease fee is $700, the utility cost is $0.12 for every gallon and PureVida charges $0.06 for maintenance. Grocers Inc. customers would purchase refilled gallons of water for $0.97.a. What is the annual break-even point for each option?b. At what volume in number of gallons would the two options have the same cost?c. At what forecasted volume should Grocers Inc. select ClearWater and what volume should they select PureVida and why?
Mary Williams, owner of Williams Products, is evaluating whether to introduce a new product line. After thinking through the production process and the costs of raw materials and new equipment, Williams estimates the variable costs of each unit produced and sold at $8 and the fixed costs per year at $70,000. Williams forecasts sales of 12,000 units for the first year if the selling price is set at $15 each. What would be the total contribution to profits from this new product during the first year?
The owner of the Party City Toronto Company must decide among building a mega centre store, building 5 new stores, or leasing 10 of their locations to another company. The profit that will result from each alternative will be determined by whether material costs remain stable, increase moderately, or increase significantly. In the payoff table below the estimated profits/losses are given in $thousands. Material Costs Stable Mega Centre Decision New Stores Leasing Determine the best decision using the Maximax decision criterion. 2130 Moderate Increase 1850 840 530 1050 940 O Decision: Mega Centre based on 2470 = max(2470,1850,1040) O Decision: Mega Centre based on 2130 = max(2130,1850,1040) Decision: Stable based on 2130 = max(2130,1050,1040) O Decision: Leasing based on 2820 = max(190,2750,2820) Significant Increase -2470 -150 1040
The XYZ manufacturing company is considering replacing one of its metal cutting machine which can be sold today for $3,000. If they kept this machine for 4 more years, its salvage value will be zero. The challenger costs $18,000, and its life is 4 years. The estimated salvage value of the challenger at the end of four years is $6,000. Should the XYZ company replace the old machine? Use the opportunity cost approach with rate of return of 10%. Assume operating costs per year for defender equals $2,000 and a saving in operating costs per year of 75% for challenger.
Expando, Inc. is considering the possibility of building an additional factory that would produce a new addition to its product line. The company is currently considering two options. The first is a small facility that it could build at a cost of $9 million. If demand for new products is low, the company expects to receive $11 million in discounted revenues (present value of future revenues) with the small facility. On the other hand, if demand is high, it expects $12 million in discounted revenues using the small facility. The second option is to build a large factory at a cost of $12 million. Were demand to be low, the company would expect $13 million in discounted revenues with the large plant. If demand is high, the company estimates that the discounted revenues would be $18 million. In either case, the probability of demand being high is 0.50, and the probability of it being low is 0.50. Not constructing a new factory would result in no additional revenue being generated because…
Hillary’s Flight Operations offers maintenance and repair services for business jets located in Atlanta. They are considering whether they should expand their operations. Hillary has decided that they have a number of options—four to be precise. They can keep their current facilities; they can modify their facilities to make them more efficient; they can expand their current facility; or they can rent additional space. The decision as to which option they should select is predicated upon the estimation of the direction of the economy for the next four years. Hillary’s Flight Operations developed the following decision matrix. What option should Hillary’s Flight Operations make based on Maximax criterion? Future Air Traffic Alternatives Down Same Up Keep As Is ($40,000) $70,000 $100,000 Remodel ($60,000) $65,000 $200,000 Expansion ($150,000) $50,000 $400,000 Rent ($50,000) $60,000 $80,000 Group of answer choices
( Use an excel sheet to show formulas used )
9
A fully leased three-story suburban office building near Disneyworld had a total of 60,000 rentable square feet. Each of the three floors had an identical layout with two public bathrooms, an elevator lobby, and a public hallway that yielded a load factor per floor of 1.20. The lease form used for the building was written so that rent was paid by the tenants per usable square foot of rented floor space. If the total annual rental income for the building was $1.8 million, what was the monthly rent per usable square foot? a. $3.00 b. $3.60 c. $2.00 d. $2.40
Metro has initiated discussions on attracting rail service. A depot would need to be constructed, which would require $2.5million in land and $7.5 million in construction costs. Annual operating and maintenance costs (O&M) for the facility would be $150,000, and personnel costs would be an additional $110,000. Other assorted costs would be born by the railroad and federal authorities. Annual benefits (B) of the rail service are estimated as listed: $120,000 for Railroad annual payments, $25,000 for Rail tax charged to passengers, $20,000 for Convenience benefits to local residents, and $12,000 for Additional tourism dollars for Metro. Apply the B-C ratio method, with a MARR of 8% per year and 20 year study period, to determine if the rail service should be established. a. BC ratio=2.12, good project b. BC ratio=-1.76, good project c. BC ratio=1.69, good project d. BC ratio=0.14, not good project
A manager is trying to decide whether to build a small, medium, or large facility. Demand can be low, average, or high, with the estimated probabilities being 0.40, 0.35, and 0.25, respectively. A small facility is expected to earn an after-tax net present value of just $13,000 if demand is low. If demand is average, the small facility is expected to earn $15,000; it can be increased to medium size to earn a net present value of $30,000. If demand is high, the small facility is expected to earn $25,000 and can be expanded to medium size to earn $50,000 or to large size to earn $100,000. A medium-sized facility is expected to lose an estimated $50,000 if demand is low and earn $100,000 if demand is average. If demand is high, the medium-sized facility is expected to earn a net present value of $125,000; it can be expanded to a large size for a net payoff of $175,000. If a large facility is built and demand is high, earnings are expected to be $180,000. If demand is average for the large…
II. + James Scott is considering the possibility of opening a small outfit shop on Sta. Maria District, a few blocks from St. Green Ville College. She has located on a mall that attracts students. To open a small shop, medium sized shop, or no shop at all are her options. The market can be good, average, or bad. The probabilities for these three possibilities are 30% for good market, 50% for an average market, and 20% for bad market. The profit or loss for the said market conditions are given in the table below; ALTERNATIVE Small Shop Medium Sized Shop No Shop GOOD 150,000 200,000 0 AVERAGE 50,000 70,000 0 a) Calculate the Expected Value of Perfect Information (EVPI) b) What do you recommend? BAD -80,000 -120,000 0

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