Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Myers Business Systems is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are given next:
Possible Market Reaction | Sales in Units | Probabilities | ||||
Low response | 30 | 0.10 | ||||
Moderate response | 40 | 0.10 | ||||
High response | 55 | 0.20 | ||||
Very high response | 65 | 0.60 | ||||
a. What is the expected value of unit sales for the new product? (Do not round intermediate calculations and round your answer to the nearest whole unit.)
b. What is the standard deviation of unit sales? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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- Consider a company faced with a competitor's price reduction. Should the company also reduce price in order to maintain market share or should the company maintain its current price? The company has conducted some preliminary research showing the financial outcomes of each decision under two competitor responses: the competition maintains its price or the competition lowers its price further. The company feels pretty confident that the competitor cannot lower its price further and assigns that outcome a probability (p) of 0.7, which means the other outcome would have only a 30 percent chance of occurring (1-p=0.3). These outcomes are shown in the table below:Competitive ResponseCompany action Maintain Price, p=0.7 Reduce Price, (1-p)=0.3Reduce Price $155,000 $125,000Maintain Price $165,000 $95,000What is the expected value of perfect information (EMV Subscript PI)? Should the research be conducted? Assume that conducting more research costs $15,000.arrow_forwardHighknob Co is thinking about introducing a new product.Below are the possible levels of unit sales and the probabilities of their occurrence. What is the expected value of the new product? Possible Market Reaction Sales in Units Probabilities Low Response 20 .10 Moderate Response 40 .20 High Response 65 .40 Very High Response 80 .30arrow_forwardMetal manufacturing has isolated four alternatives for meeting for increased production capacity. The following summarized datea gathered relative to each of these alternatives. Alternative Expected Return Standard Deviation A 21% 8.3% B 25% 8.8% C 16% 6.1% D 13% 4.4% Calculate the coefficient of variation for each alternative If the firm wishes to minimize risk, which alternative do you recommend?arrow_forward
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