decide whether to bring out a full, partial or minimal product line. The company has three levels of product acceptance and has estimated their probability of occurrence. Management will make the decision on the basis of maximising the expecied profit from the first year of production. The relevant data are shown in the following table where first year profits in thousand rupees are given: A company is trying to manufacture a new type of toy. The company is attempting to Fair Poor State of Nature -> Good 0-4 0-4 Product Line Į Probability: 0-2 60 15 Full 90 80 65 10 Partial Minima! 60 50 (i) What is the optimum product line and its expected profit? (ii) What is the optimum valhre of expected opportunity loss and the optimum course of action?

decide whether to bring out a full, partial or minimal product line. The company has three levels of product acceptance and has estimated their probability of occurrence. Management will make the decision on the basis of maximising the expecied profit from the first year of production. The relevant data are shown in the following table where first year profits in thousand rupees are given: A company is trying to manufacture a new type of toy. The company is attempting to Fair Poor State of Nature -> Good 0-4 0-4 Product Line Į Probability: 0-2 60 15 Full 90 80 65 10 Partial Minima! 60 50 (i) What is the optimum product line and its expected profit? (ii) What is the optimum valhre of expected opportunity loss and the optimum course of action?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.1IP

See similar textbooks

Similar questions

A farmer believes there is an equal chance that the next growing season will be abnormallyrainy. His expected return function has the formExpected return = 0.5lnYNR + 0.5lnYRwhere YNR and YR represent the farmer’s income in the states of “normal rain”and “rainy,” respectively.Suppose the farmer must choose between two crops that promise the following incomeprospects:Crop YNR YRMaize $14,000 $5,000Cotton $9,500 $7,500a) Which of the crops will he plant?b) Suppose the farmer can plant half his field with each crop. Would he choose to do so?Explain your result.c) What mix of Maize and Cotton would provide maximum expected utility to this farmer?d) Would Maize crop insurance, available to farmers who grow only Maize, which costs$2,000 and pays off $4,000 in the event of a rainy growing season, cause this farmer tochange what he plants?
Project NOLA has an initial after-tax cost of $150,000 at t = 0 The project is expected to produce after-tax CFs of $60,000 for the next three years. The project's WACC is 10%. The project's CFs depend critically upon customer's acceptance of the product. There's a 60% probability that the product will be successful and generate annual after-tax CFs of $100,000, and a 40% probability that it will not be successful and hence produce annual after-tax of -$20,000. Should the company abandon the project after a year ?please so working for everything. Thank you.
WorldTrans is considering a project that has an up-front cost at t = 0 of $2,700. (All dollars in this problem are in thousands.) The project's subsequent cash flows are critically dependent on whether a competitor's product is approved by the Food and Drug Administration. If the FDA rejects the competitive product, WorldTrans's product will have high sales and cash flows, but if the competitive product is approved, that will negatively impact WorldTrans. There is a 60% chance that the competitive product will be rejected, in which case WorldTrans's expected cash flows will be $750 at the end of each of the next seven years (t = 1 to 7). There is a 40% chance that the competitor's product will be approved, in which case the expected cash flows will be only $50 at the end of each of the next seven years (t = 1 to 7). WorldTrans will know for sure one year from today whether the competitor's product has been approved. WorldTrans is considering whether to make the investment today or to…
A global equity manager is assigned to select stocks from a universe of large stocks throughout the world. The manager will be evaluated by comparing her returns to the return on the MSCI World Market Portfolio, but she is free to hold stocks from various countries in whatever proportions she finds desirable. Results for a given month are contained in the following table: Country Weight InMSCI Index Manager’sWeight Manager’s Returnin Country Return of Stock Indexfor That Country U.K. 0.29 0.24 22% 15% Japan 0.42 0.2 17 17 U.S. 0.23 0.22 10 13 Germany 0.06 0.34 7 15 Required: a. Calculate the total value added of all the manager’s decisions this period. (Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign.) b. Calculate the value added (or subtracted) by her country allocation decisions. (Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount…
53. The annual demand for Prizdol, a prescription drugmanufactured and marketed by the NuFeel Company,is normally distributed with mean 50,000 and standarddeviation 12,000. Assume that demand during each ofthe next 10 years is an independent random numberfrom this distribution. NuFeel needs to determine howlarge a Prizdol plant to build to maximize its expectedprofit over the next 10 years. If the company builds aplant that can produce x units of Prizdol per year, it willcost $16 for each of these x units. NuFeel will produceonly the amount demanded each year, and each unit ofPrizdol produced will sell for $3.70. Each unit of Prizdol produced incurs a variable production cost of $0.20.It costs $0.40 per year to operate a unit of capacity.a. Among the capacity levels of 30,000, 35,000,40,000, 45,000, 50,000, 55,000, and 60,000 unitsper year, which level maximizes expected profit?Use simulation to answer this question.b. Using the capacity from your answer to part a,NuFeel can be 95%…
In the past four years, the annual returns of one company’s stockare 12%, 18%, and –14%, and 7%.a) What is the geometric average return? b) What is the arithmetic average of the returns? c) According to an economist’ forecast on the Year 2020, the probabilities of repeatingthe performances of the former four years are 30%, 30%, 20%, and 20%, respectively.What is the expected return of the stock in the Year 2020
Calculate the expected monetary value (EMV) of both company actions. Which action should the company take?
Pls do fast and i will rate instantly for sure Solution must be in typed form Calculate the covariance for the returns of stock 1 and stock 2 given the six years of historical returns presented below: Given that the standard deviation of stock 1 and stock 2 in the table above is 0.2236 and 0.3225, respectively, use your answer in (A) to calculate and interpret the correlation between the 2 assets. Based on the characteristics of NSC and JSE above you are considering forming a portfolio comprising the two stocks such that you invest the following amounts: i. $40000 and $60000 in company NSC and JSE respectively in the first instance, and alternatively ii. $70000 and $30000 in company NSC and JSE respectively. C. What is the expected return and standard deviation of the portfolio in the two instances above? What is the expected return and standard deviation of the portfolio in the two instances above?
Your firm uses a continuous review system and operates52 weeks per year. One of the SKUs has the followingcharacteristics.Demand 1D2 = 20,000 units>yearOrdering cost 1S2 = $40>orderHolding cost 1H2 = $2>unit>yearLead time 1L2 = 2 weeksCycle@service level = 95 percentDemand is normally distributed, with a standard deviation ofweekly demand of 100 units.Current on-hand inventory is 1,040 units, with no scheduledreceipts and no backorders.a. Calculate the item’s EOQ. What is the average time, inweeks, between orders?b. Find the safety stock and reorder point that provide a95 percent cycle-service level c. For these policies, what are the annual costs of (i) holdingthe cycle inventory and (ii) placing orders?d. A withdrawal of 15 units just occurred. Is it time to reor-der? If so, how much should be ordered?
The owner of a ski resort is considering installing a new ski lift that will cost $900,000. Expenses for operating andmaintaining the lift are estimated to be $1,500 per day when operating. The U.S. Weather Service estimates thatthere is a 60% probability of 80 days of skiing weather per year, a 30% probability of 100 days per year, and a 10% probability of 120 days per year. The operators of the resort estimate that during the first 80 days of adequate snow in a season, an average of 500 people will use the lift each day, at a fee of $10 each. If 20 additional days are available, the lift will be used by only 400 people per day during the extra period; and if 20 more days of skiing are available, only 300 people per day will use the lift during those days. The owners wish to recover any invested capital within five years and want at least a 25% per year rate of return before taxes. Based on a before-tax analysis, should the lift be installed?
a. If the decision maker knows nothing about the probabilities of the fourstates of nature, what is the recommended decision using:i. the optimistic approachii. the conservative approachiii. the minimax regret approachiv. the Laplace method
Suppose XYZ Corporation's stock price rises or falls with equal probability by $25 each month, starting where it ended the previous month. What is the value of a three month at the-money European call option on XYZ's stock if the stock is priced at $100 when the option is purchased?$______