A. Micro Processors Ltd is in process of purchasing a high-tech machine for its production of microchips for the electronic industry. In its research, it has gathered the following information about two possible machines A and B. Both machines will be able to provide benefits over a ten-year period, and each required an investment of $10 000. Management has constructed the following table of estimates of rate of return and probabilities for Pessimistic, Most Likely and Optimistic results. Pessimistic Most likely Optimistic Machine A State of nature Rate of Return Probability 11% 18% 22% Machine B Rate of ReturnProbability 9% 18% 0.30 0.30 0.45 0.45 0.25 0.25 25% Required: i. Compute expected rate of return for each machine. ii. Compute variance and standard deviation of rate of returm for each machine. iii. Coefficient of variation for each machine iv. Recommend which machine the firm should purchase?

A. Micro Processors Ltd is in process of purchasing a high-tech machine for its production of microchips for the electronic industry. In its research, it has gathered the following information about two possible machines A and B. Both machines will be able to provide benefits over a ten-year period, and each required an investment of $10 000. Management has constructed the following table of estimates of rate of return and probabilities for Pessimistic, Most Likely and Optimistic results. Pessimistic Most likely Optimistic Machine A State of nature Rate of Return Probability 11% 18% 22% Machine B Rate of ReturnProbability 9% 18% 0.30 0.30 0.45 0.45 0.25 0.25 25% Required: i. Compute expected rate of return for each machine. ii. Compute variance and standard deviation of rate of returm for each machine. iii. Coefficient of variation for each machine iv. Recommend which machine the firm should purchase?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.15E

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