1. Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $100,000. Your dealings on the secondhand market lead you to believe that if you commit to a price of $200,000, there is a 0.5 chance you will be able to sell the machine. If you commit to a price of $300,000, there is a 0.2 chance you will be able to sell the machine. If you commit to a price of $400,000, there is a 0.15 chance you will be able to sell the machine. These probabilities are summarized in the following table. For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to your company in the event that you are not be able to sell the machine.) Posted Price Probability of Sale Expected Value ($) (5) $400,000 0.15 $300,000 0.2 $200,000 0.5 a. b. C. Assume you must commit to one posted price. 2. In order to maximize the expected profit of the potential sale, which posted price would you commit to in order to maximize the
1. Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $100,000. Your dealings on the secondhand market lead you to believe that if you commit to a price of $200,000, there is a 0.5 chance you will be able to sell the machine. If you commit to a price of $300,000, there is a 0.2 chance you will be able to sell the machine. If you commit to a price of $400,000, there is a 0.15 chance you will be able to sell the machine. These probabilities are summarized in the following table. For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to your company in the event that you are not be able to sell the machine.) Posted Price Probability of Sale Expected Value ($) (5) $400,000 0.15 $300,000 0.2 $200,000 0.5 a. b. C. Assume you must commit to one posted price. 2. In order to maximize the expected profit of the potential sale, which posted price would you commit to in order to maximize the
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
Related questions
Question
Transcribed Image Text:1. Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion
machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $100,000.
Your dealings on the secondhand market lead you to believe that if you commit to a price of $200,000, there is a 0.5 chance you
will be able to sell the machine. If you commit to a price of $300,000, there is a 0.2 chance you will be able to sell the machine. If
you commit to a price of $400,000, there is a 0.15 chance you will be able to sell the machine. These probabilities are summarized
in the following table.
For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the
value of the machine to your company in the event that you are not be able to sell the machine.)
Posted Price Probability of Sale Expected Value
($)
($)
$400,000 0.15
$300,000 0.2
$200,000 0.5
a.
a. $400,000
b. $200,000
c. $300,000
b.
C.
Assume you must commit to one posted price.
2. In order to maximize the expected profit of the potential sale, which posted price would you commit to in order to maximize the
expected value of the potential sale of the machine?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education