PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 10, Problem 28PS
Summary Introduction
To determine: whether the $18 million investment in phase II trials positive
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Students have asked these similar questions
A large decision tree has an outcome branch detailed below. If decisions D1, D2, and D3 are all
options in a 1-year time-period, find the decision path that maximizes the outcome value. There
are specific dollar investments necessary for decision nodes D1, D2 and D3,a s indicated on
each branch
D2
Investment
$-50
D1
$-80
$-25
$-30
$-35
0.9
0.1
0.3
0.3
0.4
0.5
0.5
D3
Value, $
150
-30
75
200
-100
50
0.4
0.6
Value, $
30
100
-50
500
90
Alternatives X and Y have rates of return of 10% and 18%, respectively. What is known about the rate of return on the increment between X and Y if the investment required in Y is (a) larger than that required for X, and (b) smaller than that required for X? (c) Develop two spreadsheet examples that illustrate your responses to parts (a) and (b).
The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature:
State of Nature
Decision Alternative
S1
S2
S3
d1
200
150
150
d2
250
150
100
The probabilities for the states of nature are P(s1) = 0.55, P(s2) = 0.25, and P(s3) = 0.2.
(a)
What is the optimal decision strategy if perfect information were available?
S1
:
S2
:
S3
:
(b)
What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place.
(c)
Using the expected value approach, what is the recommended decision without perfect information?
What is its expected value? If required, round your answer to one decimal place.
(d)
What is the expected value of perfect information? If required, round your answer to one decimal place.
Chapter 10 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 10 - Terminology Match each of the following terms to...Ch. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Sensitivity analysis Otobais staff (see Section...Ch. 10 - Prob. 4PSCh. 10 - Prob. 7PSCh. 10 - Scenario analysis What is the NPV of the electric...Ch. 10 - Prob. 9PSCh. 10 - Break-even analysis Break-even calculations are...Ch. 10 - Prob. 11PSCh. 10 - Prob. 12PS
Ch. 10 - Prob. 13PSCh. 10 - Break-even analysis A financial analyst has...Ch. 10 - Fixed and variable costs In a slow year, Deutsche...Ch. 10 - Operating leverage You estimate that your cattle...Ch. 10 - Prob. 17PSCh. 10 - Prob. 20PSCh. 10 - Real options Explain why options to expand or...Ch. 10 - Prob. 22PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 24PSCh. 10 - Real options An auto plant that costs 100 million...Ch. 10 - Decision trees Look back at the Vegetron electric...Ch. 10 - Prob. 27PSCh. 10 - Prob. 28PSCh. 10 - Prob. 29PSCh. 10 - Prob. 32PS
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