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- Consider an investment project with the following cash flows: N Cash Flow 0 -$5,0001 $02 $4,8403 $1,331ComputcthelRRforthisinvestment.lsthisprojectacceptablcatMARR = 10%?A food company is considering three different salad dressings to introduce nationally, Dressing A, B, and C. They also have the option to not introduce any dressing this year. The profits from dressings A, B, and C are $1,144,712, $1,515,938, and $2,525,542 respectively if the national market is favorable. However, if the national market is unfavorable, the losses are $555,615, $758,875, and $912,435 respectively. Historical data shows a probability of 0.568 for a favorable national market. The company can test the market for salad dressings in selected geographic areas before introducing them nationally. The cost of the test market is $53,331. In the past, the probability of a negative test market was 0.354. Given a positive test market, a favorable national market was actually observed with a probability of 0.745. Given a negative test market, a favorable national market was actually observed with a probability of 0.304. Determine if the company should test the market before…A firm that plans to expand its product line must decide whether to build a small or a large facilityto produce the new products. If it builds a small facility and demand is low, the net present valueafter deducting for building costs will be $400,000. If demand is high, the firm can either maintainthe small facility or expand it. Expansion would have a net present value of $450,000, and maintaining the small facility would have a net present value of $50,000.If a large facility is built and demand is high, the estimated net present value is $800,000. If demandturns out to be low, the net present value will be – $10,000.The probability that demand will be high is estimated to be .60, and the probability of low demandis estimated to be .40.a. Analyze using a tree diagram.
- A firm that plans to expand its product line must decide whether to build a small or a large facilityto produce the new products. If it builds a small facility and demand is low, the net present valueafter deducting for building costs will be $400,000. If demand is high, the firm can either maintainthe small facility or expand it. Expansion would have a net present value of $450,000, and maintaining the small facility would have a net present value of $50,000.If a large facility is built and demand is high, the estimated net present value is $800,000. If demandturns out to be low, the net present value will be – $10,000.The probability that demand will be high is estimated to be .60, and the probability of low demandis estimated to be .40. 1- Compute the EVPI 2- Determine the range over which each alternative would be best in terms of the value of P ( low demand )Private Insurance provides coverages that can be used to meet specific loss situations. For each of the following insurance situation, identify a private insurance coverage that would provide the desired protection and explain your recommendation; A. John, 32, single parent with 1 dependent child. He recently purchased a house worth PhP 5 million, where half of this amount is mortgaged loan (PagIBIG). He wants to be certain that he would be able to pay his loan in case of disability. B. Rey, 36, married with 3 dependents. His wife is a disabled person and is unable to work. As the sole breadwinner, he wants to be sure that his family would have funds in case of his premature death. C. Marian, 44, owns a trading shop. The premises are rented. The total amount value of goods in her shop amounts to PhP 7 million. She has no savings. She wants to be certain she will be able to run her business if her shop catches fire and other loss. D. Dominic, 15, a talented motor racer. However, his…Carlisle Tire and Rubber, Inc., is considering expanding production to meet potential increases in the demand for one of its tire products. Carlisle’s alternatives are to construct a new plant, expand the existing plant, or do nothing in the short run. The market for this particular tire product may expand, remain stable, or contract. Carlisle’s marketing department estimates the probabilities of these market outcomes to be 0.25, 0.35, and 0.40, respectively. The file P06_31.xlsx (picture of given excel file is attached) contains Carlisle’s payoffs and costs for the various combinations of decisions and outcomes. Identify the strategy that maximizes this tire manufacturer’s expected profit. Perform a sensitivity analysis on the optimal decision, letting each of the monetary inputs vary one at a time plus or minus 10% from its base value, and summarize your findings. Which of the inputs appears to have the largest effect on the best solution?
- 4. Transrail is bidding on a project that it figures will cost $400,000 to perform. Using a 25% markup, it will charge $500,000, netting a profit of $100,000. However, it has been learned that another company, Rail Freight, is also considering bidding on the project. If Rail Freight does submit a bid, it figures to be a bid about $470,000. Transrail really wants this project and is considering a bid with only a 15% markup to $460,000 to ensure winning regardless of whether or not Rail Freight submits a bid. a. Prepare a profit payoff table from Transrail’s point of view. (6 points) b. For this payoff table find Transrail’s optimal decision using (1) the pessimistic approach, (2) the optimistic approach, and (3) minimax regret approach. (10 points) c. If Rail Freight is known to submit bids on only 25% of the projects it considers, what decision should Transrail make? (5 points) d. Given the information in (c), what is EVPI? (5 points)ABC Limited Company is looking to invest in aproject. The cost of that project is $60,000 and the cash inflows and outflows of the project for 5 years, are shown in Table 1 below. The company’s WACC is 7%. Years Cash InflowsCash Outflows0 (Initial Outlay) $60,000.001 $20,000.00 $5,000.002 $21,000.00 $2,000.003 $22,000.00 $2,000.004 $14,000.00 $2,000.005 $10,000.00 $1,000.00 Profitability Index (PI) ii. Net Present Value (NPV), and estimate the Internal Rate of Return (IRR) of the Project using the given interest rate and 9%.A company is considering a new product launch. There is a 0.6 chance thatdemand for the product will be strong and a 0.4 chance that demand will beweak. Two strategies for the launch are possible: 1 has high promotion costs anda net cash outflow of K120 000 if demand proves to be strong, and if demandproves weak a net cash outflow of (K30 000) will result. Strategy 2 has lowpromotion costs and if demand is strong will generate a cash inflow of only K80000 but with weak demand a net cash inflow of K20 000. i. Draw a decision tree and advise which course of action generates thegreatest expected profit. ii. What is the maximum amount that should be paid for market research todetermine with certainty whether demand will be strong or weak?
- Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale. The marketing department indicated that the success of any product depends on the market conditions (Favorable, Neutral, or Unfavorable). The profit the company will earn also depends on the market conditions. The table below shows the probability estimated for each market condition and the profits Maximus Steel will realize within those conditions: Product Code Market Conditions Favorable P = 0.2 Neutral P = 0.7 Unfavorable P = 0.1 Wren $120,000 $70,000 ($30,000) Hawk $60,000 $40,000 $20,000 Nightingale $35,000 $30,000 $30,000 Maximus Steel is considering hiring a market research firm to do a survey to determine future market conditions. The results of the survey will indicate either positive or negative market conditions. There is a 0.60 probability of a positive report, given favorable conditions; a 0.30 probability of a positive…Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale. The marketing department indicated that the success of any product depends on the market conditions (Favorable, Neutral, or Unfavorable). The profit the company will earn also depends on the market conditions. The table below shows the probability estimated for each market condition and the profits Maximus Steel will realize within those conditions: Product Code Market Conditions Favorable P = 0.2 Neutral P = 0.7 Unfavorable P = 0.1 Wren $120,000 $70,000 ($30,000) Hawk $60,000 $40,000 $20,000 Nightingale $35,000 $30,000 $30,000 Part 1 Instructions: Develop the opportunity loss table and compute the expected opportunity loss for each product.Consider a small Oil production firm with 5 competing oil production projects, A - E. The table below shows the estimated long-term profit (Net Present Value) for each project as well as the amount of investment capital required to start the project. You have been contacted to help select the best combination of projects to maximize the Net Present Value subject to the capital investment limit of $32 million. Production Project A B C D E Estimated Profit (millions) 25 20 19 28 21 Capital Required (millions) 11 8 14 19 13 Formulate a Binary Integer Programming (BIP) model on a spreadsheet. Solver the model using Solver.