Your company is planning on opening an office in Japan. Profits depend on how fast the economy in Japan recovers from its current recession. There is a 50% chance of recovery this year. You are trying to decide whether to open the office now or in a year. Construct the decision tree that shows the choices you have to open the office either today or one year from now.

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Answer 1

Textbook Question

Chapter 22, Problem 1P

Your company is planning on opening an office in Japan. Profits depend on how fast the economy in Japan recovers from its current recession. There is a 50% chance of recovery this year. You are trying to decide whether to open the office now or in a year. Construct the decision tree that shows the choices you have to open the office either today or one year from now.

Expert Solution & Answer

Summary Introduction

To draw: The decision tree.

Introduction:

Decision tree is a tree-like graph which helps to identify strategies which are most likely to achieve goals. A decision tree comprises decision support tools.

Explanation of Solution

Given information:

A company is planning on opening an office in Japan. Company profit depends on Japanʼs economyʼs recovery from its current recession. The chance of recovery from recession is 50.00%.

Possible decision:

Possible decision in the decision tree:

1. To open office
2. To not open office

If to open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office and economy recover, then two possible decisions:

1. To open office
2. To not open office

If to not open office and the economy does not recover, then two possible decisions:

1. To open office
2. To not open office

Diagram from decision tree:

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book, Chapter 22, Problem 1P

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General Finance Question

Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes): Income Statement Balance Sheet Sales Costs $ 40,000 Assets 34,160 $26,000 Debt Equity $ 7,000 19,000 Net income $ 5,840 Total $26,000 Total $26,000 The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) Pro forma income statement Sales Costs $ 48000 40992 Assets $ 31200 Pro forma balance sheet Debt 7000 Equity 19000 Net income $ 7008 Total $ 31200 Total 30304 What is the external financing needed? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.) External financing needed $ 896

Answer 2

Textbook Question

Chapter 22, Problem 1P

Your company is planning on opening an office in Japan. Profits depend on how fast the economy in Japan recovers from its current recession. There is a 50% chance of recovery this year. You are trying to decide whether to open the office now or in a year. Construct the decision tree that shows the choices you have to open the office either today or one year from now.

Expert Solution & Answer

Summary Introduction

To draw: The decision tree.

Introduction:

Decision tree is a tree-like graph which helps to identify strategies which are most likely to achieve goals. A decision tree comprises decision support tools.

Explanation of Solution

Given information:

A company is planning on opening an office in Japan. Company profit depends on Japanʼs economyʼs recovery from its current recession. The chance of recovery from recession is 50.00%.

Possible decision:

Possible decision in the decision tree:

1. To open office
2. To not open office

If to open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office and economy recover, then two possible decisions:

1. To open office
2. To not open office

If to not open office and the economy does not recover, then two possible decisions:

1. To open office
2. To not open office

Diagram from decision tree:

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book, Chapter 22, Problem 1P

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Answer 3

Textbook Question

Chapter 22, Problem 1P

Your company is planning on opening an office in Japan. Profits depend on how fast the economy in Japan recovers from its current recession. There is a 50% chance of recovery this year. You are trying to decide whether to open the office now or in a year. Construct the decision tree that shows the choices you have to open the office either today or one year from now.

Expert Solution & Answer

Summary Introduction

To draw: The decision tree.

Introduction:

Decision tree is a tree-like graph which helps to identify strategies which are most likely to achieve goals. A decision tree comprises decision support tools.

Explanation of Solution

Given information:

A company is planning on opening an office in Japan. Company profit depends on Japanʼs economyʼs recovery from its current recession. The chance of recovery from recession is 50.00%.

Possible decision:

Possible decision in the decision tree:

1. To open office
2. To not open office

If to open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office and economy recover, then two possible decisions:

1. To open office
2. To not open office

If to not open office and the economy does not recover, then two possible decisions:

1. To open office
2. To not open office

Diagram from decision tree:

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book, Chapter 22, Problem 1P

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Answer 4

Textbook Question

Chapter 22, Problem 1P

Your company is planning on opening an office in Japan. Profits depend on how fast the economy in Japan recovers from its current recession. There is a 50% chance of recovery this year. You are trying to decide whether to open the office now or in a year. Construct the decision tree that shows the choices you have to open the office either today or one year from now.

Expert Solution & Answer

Summary Introduction

To draw: The decision tree.

Introduction:

Decision tree is a tree-like graph which helps to identify strategies which are most likely to achieve goals. A decision tree comprises decision support tools.

Explanation of Solution

Given information:

A company is planning on opening an office in Japan. Company profit depends on Japanʼs economyʼs recovery from its current recession. The chance of recovery from recession is 50.00%.

Possible decision:

Possible decision in the decision tree:

1. To open office
2. To not open office

If to open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office and economy recover, then two possible decisions:

1. To open office
2. To not open office

If to not open office and the economy does not recover, then two possible decisions:

1. To open office
2. To not open office

Diagram from decision tree:

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book, Chapter 22, Problem 1P

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

Summary Introduction

To draw: The decision tree.

Introduction:

Decision tree is a tree-like graph which helps to identify strategies which are most likely to achieve goals. A decision tree comprises decision support tools.

Explanation of Solution

Given information:

A company is planning on opening an office in Japan. Company profit depends on Japanʼs economyʼs recovery from its current recession. The chance of recovery from recession is 50.00%.

Possible decision:

Possible decision in the decision tree:

1. To open office
2. To not open office

If to open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office and economy recover, then two possible decisions:

1. To open office
2. To not open office

If to not open office and the economy does not recover, then two possible decisions:

1. To open office
2. To not open office

Diagram from decision tree:

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book, Chapter 22, Problem 1P

Answer 8

Expert Solution & Answer

Summary Introduction

To draw: The decision tree.

Introduction:

Decision tree is a tree-like graph which helps to identify strategies which are most likely to achieve goals. A decision tree comprises decision support tools.

Explanation of Solution

Given information:

A company is planning on opening an office in Japan. Company profit depends on Japanʼs economyʼs recovery from its current recession. The chance of recovery from recession is 50.00%.

Possible decision:

Possible decision in the decision tree:

1. To open office
2. To not open office

If to open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office and economy recover, then two possible decisions:

1. To open office
2. To not open office

If to not open office and the economy does not recover, then two possible decisions:

1. To open office
2. To not open office

Diagram from decision tree:

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book, Chapter 22, Problem 1P

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Summary Introduction

To draw: The decision tree.

Introduction:

Decision tree is a tree-like graph which helps to identify strategies which are most likely to achieve goals. A decision tree comprises decision support tools.

Answer 12

Explanation of Solution

Given information:

A company is planning on opening an office in Japan. Company profit depends on Japanʼs economyʼs recovery from its current recession. The chance of recovery from recession is 50.00%.

Possible decision:

Possible decision in the decision tree:

1. To open office
2. To not open office

If to open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office, then two possible decisions:

1. Economy recover
2. Economy doesn’t recover

If to not open office and economy recover, then two possible decisions:

1. To open office
2. To not open office

If to not open office and the economy does not recover, then two possible decisions:

1. To open office
2. To not open office

Diagram from decision tree:

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book, Chapter 22, Problem 1P

Answer 13

Ch. 22.1 - What is the difference between a real option and a...Ch. 22.1 - Why does a real option add value to an investment...Ch. 22.2 - Prob. 1CC Ch. 22.2 - In what circumstances does the real option add...Ch. 22.2 - How do you use a decision tree to make the best...Ch. 22.3 - What is the economic trade-off between investing...Ch. 22.3 - Prob. 2CC Ch. 22.3 - Does an option to invest have the same beta as the...Ch. 22.4 - Why can a firm with no ongoing projects, and...Ch. 22.4 - Why is it sometimes optimal to invest in stages?

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