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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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- 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. Recession (50%) -$ 10 $ 20 -$ 30 $ 50 Boom (50%) $ 20 Project A B -$ 10 $ 30 $ 50 If a manager adopted both projects A and B simultaneously, the varlance in returns assoclated with this joint project would be Multiple Choice 0. 10. 30. 50.You are considering opening a new plant. The plant will cost $101.3 million up front and will take one year to build. After that it is expected to produce profits of $30.5 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8.6%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. The NPV of the project will be $ 225.3 million. (Round to one decimal place.) You should make the investment. (Select from the drop-down menu.) The IRR is %. (Round to two decimal places.) 23An investor has $24,000 to invest in bonds of AAA and B qualities. The AAA bonds yield an average of 6% and the B bonds yield 10%. The investor requires that at least three times as much money should be invested in AAA bonds as in B bonds. How much should be invested in each type of bond to maximize the return? What is the maximum return? Define the variables needed to solve this problem. Organize your given information. (This part NOT graded, but encouraged.) Write the complete linear programming problem, which includes the objective function and all constraints. Graph and make sure all lines are labeled and shaded/solution region is clear and easy to identify. Create a corner point chart. Remember to mark your solution. Answer in a complete sentence or two: How much should be invested in each type of bond to maximize the return? What is the maximum return?
- Which of the following is FALSE regarding scenario and sensitivity analysis? Scenario analysis considers a best case (within reason) and worst case (within reason) scenario, along with a base case. Scenario analysis focuses on stand-alone risk, since it doesnt;s consider the project as a part of the larger firm. Sensitivity analysis considers that the project is one part of a larger firm Sensitivity analysis shows how changes in a single variable affects NPV or IRR Scenario analysis assumes all variables take their worst (reasonable) values simultaneously, and best (reasonable) values simultaneously.plans are underway for a new stadium for a baseball team. City officials question the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individuals may purchase a box for $300,00. The fixed construction cost for the upper deck area is estimated to be $4,500,000, with a variable cost of $150,000 for each box constructed. a. what is the expected profit of building 50 luxury boxesB-2. A firm must decide whether to construct a small, medium or large stamping plant. A consultant’s report indicates a 0.20 probability that demand will be low and 0.80 that demand will be high. If the firm builds a small facility and demand turns out to be low, the Net Present Value (NPV) will be $42M. If demand turns out to be high, the firm can either subcontract and realize the NPV of $42M or expand greatly for a Net Present Value of $48M. The firm could build a medium size facility as a hedge: if demand turns out to be low, its NPV is estimated at $22M; if demand turns out to be high, the firm could do nothing and realize a NPV of $46M, or could expand and realize a NPV of $50M. If the firm builds a large facility and demand is low, the NPV will be ($20M), whereas high demand will result in a NPV of $72M. Analyze and solve this problem using a decision tree What is the Maximin Alternative and c) Compute the…
- Quick answer please If you are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as your current Salary. You look into opening a small grocery store. Suppose that the store has annual cost of $150,000 for labor, $60,000 for rent and $30,000 for equipment. There is one-half probability that revenues will be $20,000 and a half probability that revenue will be $420,000 a. WHat is your accounting and economic profit?ABC is a hypothetical clothing company in malls. Due to fall in mall traffic during pandemic, there is skepticism amongst investors on its future performance. 30 million ABC shares were sold short of its 50 million shares outstanding. ABC share price fell from $20 to $5. The marketing campaign of ABC that switched its retail model from offline to online worked unexpectedly well. ABC's shares jumped to $22. Despite the increase in price, some investors reported a loss. What would be the possible cause? a. Short squeeze O b. The investors have adopted a buy-and-hold strategy O c. High expected volatility O d. Long position closed out prematurelyYou are at a casino and there are three slot machines you can use to bet on. You must have a return of .5% of higher on what you are betting. Below is the expected returns for each slot machine under various scenarios. What combination of machines do you play to maximize your average return? Decision Variables Data Slot 1 100.0% Monday Tuesday Wednesda Average Slot 2 0.0% Slot #1 8% 4% 5% 5.667% Slot 3 0.0% Slot #2 2% -3% 3% 0.667% Slot #3 6% -2% 4% 2.667% Objective 5.7% Constraints 0.08 >= 0.5% 0.04 >= 0.5% 0.05 >= 0.5% 100.0% .: 100%
- Problem 13-21 Please answer the questions that are in Bold: #1. Expected profit and #3, the EVSI A real estate investor has the opportunity to purchase land currently zoned residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table: State of Nature Rezoning Approved Rezoning Not Approved Decision Alternative S1 S2 Purchase, d1 600 -200 Do not purchase, d2 0 0 If the probability that the rezoning will be approved is 0.5, what decision is recommended?Recommended decision = Purchase What is the expected profit?Expected profit = $ (fill in the blank) thousands. The investor can purchase an option to buy the land. Under the…You are evaluating the possibility that your company bids $150,000 for a particular construction job. (a) If a bid of $150,000 corresponds to a relative bid of 1.20, what is the dollar profit that your company would make from winning the job with this bid? Show your work. (b) Calculate an estimate of the expected profit of the bid of $150,000 for this job. Assume that, historically, 55 percent of the bids of an average bidder for this type of job would exceed the bid ratio of 1.20. Assume also that you are bidding against three other construction companies. Show your work.Your production line has recently been producing a serious defect. One of two possible processes, A and B, could be the culprit. From past experience you know that the probability that A is causing the problem is 0.8 but investigating A costs $100,000 while investigating B costs only $20,000. What are the expected error costs of shutting down process B first? Group of answer choices $80,000. $20,000. $16,000. $4,000. None of the above.