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You are a hotel manager and you are considering four projects that yield different payoffs, depending upon whether there is an economic boom or a recession. The potential payoffs and corresponding payoffs are summarized in the accompanying table.
Project | Boom (50%) | Recession (50%) |
---|---|---|
A | $ 20 | −$ 10 |
B | −$ 10 | $ 20 |
C | $ 30 | −$ 30 |
D | $ 50 | −$ 50 |
The variance in the returns of project D is
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- Please select one option which is correct Following assumption is made in continuous review policy a.Demand rate is random b.Demand rate is fixed c.Demand is seasonal d.Lead times are variableSuppose that a one-year project that requires an initial investment of $5 million has a 65% chance of generating $12 million income, a 5% chance of generating $7 million income, a 10% chance of generating $3 million income and a 20% chance of generating nothing. In what way the VaR is inferior to the Expected Shortfall as a risk measure?Your company has a new project to be considered. You are given the following information on the best guess of related outcomes for the project. The cost of developing and market testing the product over the next year is $225 million. If the test is successful, which has a 65% chance, the company will spend another $800 million to put the production capabilities in place. The expected cash flows after tax for a successful project are $225 million each year for the next six years with a probability of.8; there is a 20% chance of a zero NPV. If the test fails the cash flows associated with continuing through the sixth year are $125 million per year after tax. The company uses a 12% discount rate for these types of projects. Draw and label the decision tree. Explain what decisions management would make at each node upon their realization.
- Suppose the City of Oolagah is considering building a new water treatment facility to better address nutrient pollution from agricultural runoff. The plant will cost the city $4 million and take one year to build, after which point it will generate $375,000 per year in health benefits over a 20 year time horizon. a)The city has a discount rate of 6%. Please neatly fill in the table below. Time Benefits Costs Net Benefits Present Value of Net Benefits 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 b)What is the Net Present Value of this proposed project? If efficiency was the only objective for making the decision and we have fully accounted for all costs and benefits would you recommend the project go ahead or not? c) Now suppose that the new plan would only generate health benefits for 17 years. What is the NPV of this proposed project? If efficiency was the only objective for making the decision and we have fully accounted for all costs and benefits would you recommend the…Suppose you are considering a project has an initial cost of $750 that has an ongoing benefit of $275. Further, there is an ongoing cost that is equal to $90, which increases by $10 each year. Assume the project lasts 6 years. If the appropriate discount rate is 5.5%. Calculate: a) the Net Present Value = $ 57.07 b) the Benefit Cost Ratio = c) should the project be accepted or rejected? Explain your answer using the information from part a) and b). Answer = (accept/reject) Provide your answers to two decimal places. Do not include any commas (,) "$" orAs the manager of Smith Construction, you need to make a decision on the number of homes to build in a new residential area where you are the only builder. Unfortunately, you must build the homes before you learn how strong demand is for homes in this large neighborhood. There is a 80 percent chance of low demand and a 20 percent chance of high demand. The corresponding (inverse) demand functions for these two scenarios are P = 300,000 −300Q and P = 800,000 −200Q, respectively. Your cost function is C(Q) = 180,000 + 260,000Q. How many new homes should you build, and what profits can you expect? Give typing answer with explanation and conclusion
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