A group is planning to back the production of a new musical at Lusaka Playhouse. It would cost K100 000 to stage for the first month. If well received by critics, it will be kept on for a further six months earning a profit of K350 000. If critics dislike it, it will close at the end of the first month. There is a 50: 50 chance of a favourable review. Should the group invest in the musical

A group is planning to back the production of a new musical at Lusaka Playhouse. It would cost K100 000 to stage for the first month. If well received by critics, it will be kept on for a further six months earning a profit of K350 000. If critics dislike it, it will close at the end of the first month. There is a 50: 50 chance of a favourable review. Should the group invest in the musical

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 30P

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A group is planning to back the production of a new musical atLusaka Playhouse. It would cost K100 000 to stage for the firstmonth. If well received by critics, it will be kept on for a further sixmonths earning a profit of K350 000. If critics dislike it, it will close atthe end of the first month. There is a 50: 50 chance of a favourablereview.Should the group invest in the musical?
In 2011, the fixed costs of a company were $500,000, and its variable costs equaled $150,000. In 2010, the company made an annual profit of $200,000. It has been predicted that, despite a steady growth, the company's variable costs will likely equal $300,00 by 2013. The total costs of the company in 2011 were
Toyota is filling an order from a Korean industrial company for machinery worth 160,000,000 Won. The export sale is denominated in Korean Won and is on a one-year open account basis. The opportunity cost of funds for Kristo Asafo Tools Ltd is 8%. The Current spot rate between Won and Dollars is 800 Won/$. The forward Won sells at a discount of 12% per annum, but the finance staff of toyota Believes that the Won will drop only 9% in value over the next year. Toyota faces the following choices This question compares the cost of a money market hedge with a forward hedge, and considers both alternatives against the possibility of remaining unhedged.Wait one year to receive the won amount and exchange Won for dollars at that time.Sell the Won proceeds of the sale forward today.Borrow Won from a Seoul bond at 20% per annum against the expected future receipt of the Korean importer’s payment.What do you recommend and why?
Given the following payoff table (in K million), about a cooking oil producer in Lusaka. The company is researching for its 2019 budget production levels. High Demand Average Demand Low Demand Produce 30,000 39 5 -13Produce 20,000 28 12 9Produce 12,000 13 4 -10Probability ? 0.5 0.2 a) Explain the meaning of 39 and -10 in the payoff table. b) What are the expected payoffs for each production level? (determine the missing probability). c) What is the expected payoff under perfect information? d) How much should the company invest in further market research to obtain perfect information?
You are given the following payoff table (in K million), about a cooking oil producer in Lusaka. The company is researching for its 2019 budget production levels. High Demand Average Demand Low Demand Produce 30,000 39 5 -13 Produce 20,000 28 12 9 Produce 12,000 13 4 -10 Probability ? 0.5 0.2 Required: a) Explain the meaning of 39 and -10 in the payoff table. b) What are the expected payoffs for each production level? (Note that you will have to determine the missing probability). c) What is the expected payoff under perfect information? d) How much should the company invest in further market research to obtain perfect information
A new housing development has lots of packed earth and weeds, but no grass. Two neighbors make a wager on who will be the first to have a lush lawn. Mr. Furious knows that a lawn will not grow without grass seed, so he immediately buys the most expensive seed he can find because everyone knows that quality improves with price. Besides, he will recover the cost of the seed through his wager. Next, he stands knee deep in his weeds and tosses the seed around his yard. Confident that he has a headstart on his neighbor, who is not making much visible progress, he begins his next project. Ms. Slo N. Steady, having grown up in the country, proceeds to clear the lot, till the soil, and even alter the slope of the terrain to provide better drainage. She checks the soil’s pH, applies weed killer and fertilizer, and then distributes the grass seed evenly with a spreader. She applies a mulch cover and waters the lawn appropriately. She finishes several days after her neighbor, who asks if she…
This game has two players: the employee (Homer) and the employer (Mr. Burns). Homer has to decide whether or not to pursue a training opportunity that will cost him $1,000. Undergoing the training will give Homer the opportunity to potentially generate additional revenue through a new business venture. Mr. Burns has to decide whether or not to pay a fixed wage to Homer of $10,000 for the new venture or to share the revenue from the new enterprise with Homer on a 50/50 split. Demand for the new venture is somewhat unpredictable. Cash flows are positively affected by both training and revenue sharing. With no training and a fixed wage, cash flow is projected to be $20,000. If either training or revenue sharing is implemented, cash flows rise to $22,000. If both training and revenue sharing are implemented, the cash flow position is even better at $25,000. Construct a pay-off matrix for this scenario. Is there a dominant strategy for both parties that results in equilibrium?…
Scenario Your corporation has just approved an 8-year expansion plan to grow its market share. The plan requires an influx of cash in each of the 8 years. Management wants to develop a financial plan to ensure the cash needed for the expansion will be available at the beginning of each of the 8 years. The corporation has the following investment options: Security Price per unit Return Rate (%) Years to Maturity 1 $1,200 10.255 5 2 $1,000 6.7550 6 3 $1,175 12.110 7 Savings Account 5.500 Each unit of security 1, 2, and 3 guarantees to pay $1,000 at maturity. Investments in these securities must take place only at the beginning of year 1 and will be held until maturity. Any funds not invested in securities will be invested in a savings account that pays the annual interest rates noted above. The following table summarizes the cash needs for the expansion plan for each of the 8 years: Year 1 = $250,000 Year 5 = $295,000…
The publishing company is publishing a book for business economics for which it has estimated the following total fixed and average variable cost: Total fixed cost $ 100,000 Average Variable Cost $ 20 Selling Price $ 30 d) Find out the publisher breakeven point if fixed cost remain same at $ 100,000 but the variable cost reduced to $10. Also find out the breakeven point if profit of $60,000 has to be earned. e) Find out the breakeven and sales at required profit of $60,000 if all cost remain same but the price per unit increased to $40.
An investor has patented a new device, and a bank is willing to lend the money to manufacture the device. Preliminary investigation establishes a suitable planning period of 5 years for the comparison of payoffs from this invention. According to the investor’s analysis, profit of $800,000 can be anticipated over the next 5 years if sales are strong; if sales are average, the investor can expect to make $200,000; and if sales are week, the investor expects to loss $50,000. Nationwide Enterprises, Inc. has offered to purchase the patent rights. Based on royalty arrangement, the inventor estimates that selling the patent rights may well bring a net profit of $400,000 if sales are strong, $70,000 if sales are average and $10,000 if sales are week. On the basis of extensive investigation of past experience with similar devices, the investor assigns the probabilities for strong, average, and week sales to be 0.2, 0.5, and 0.3 respectively. 1. Setup the payoff table for the inventor’s…
The Astana airline always books more passengers on a flight than its capacity because of last minutes cancellations. The airline charges $835 per passenger from Almaty (Kazakhstan) to Frankfurt (Germany). However, due to overbooking, it asks a few passengers travelling more than the plane’s capacity to take another flight and offers a coupon of $350, including hotel, meal, etc. The experience has shown the following probability distribution corresponding to no-shows: Number of no-shows Probabillity 0 0.05 1 0.08 2 0.12 3 0.19 4 0.25 5 0.15 6 0.11 7 0.05 The airline hires you as a consultant because you have taken a course in supply chain management. What is the average number of no-shows based on the above distribution? How many overbookings should be made to minimize loss due to no shows, given the above probability distribution? Suppose you find out that last minute no-shows are normally distributed with a mean as determined in (a) above and a standard…
You own Athleticon, which manufactures athletic wear. Your new contract with Atlanta United, a professional soccer team, allows Athleticon to be the sole suppler of athletic wear with the “Atlanta United” logo. No one lese can manufacture athletic wear with the “Atlanta United” logo. What do you think will be Athleticon’s level of profitability on the sale of “Atlanta United” athletic wear? Explain why. Your contract with Atlanta United only lasts 3 years. It was not renewed. Other firms can now manufacture athletic wear with the “Atlanta United” logo 2. What would you expect to happen to the price of “Atlanta United” athletic wear? Explain why.