None In the long run, which plan has the higher payout?AnswerPlan APayout P(Payout)Plan BPayout P(Payout)-$20,000$15,000$40,0000.40.17-$35,0000.46-$10,0000.370.43$20,0000.17O Plan A O Plan B

Step 1: The expected value of any probability distribution is calculated using the formula =∑xP(x)…

Answered: In the long run, which plan has the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Given this payoff table:STATE OF NATURE#1 #2A $120* 20Alternative B 60 40C 10 110D 90 90*Payoff in $ thousands.a. Determine the range of P(1) for which each alternative would be best, treating the payoffs asprofits.b. Answer part a treating the payoffs as costs.
11. IRR rule (S5.3) Consider the following two mutually exclusive projects: Cash flows ($) Project A B Co -50 -50 C₁ +60 0 C₂ +60 0 0 +140 Page 142 a. Calculate the NPV of each project for discount rates of 0%, 10%, and 20%. Plot these on a graph with NPV on the vertical axis and discount rate on the horizontal axis. b. What is the approximate IRR for each project? c. In what circumstances should the company accept project A? d. Calculate the NPV of the incremental investment (B – A) for discount rates of 0%, 10%, and 20%. Plot these on your graph. Show that the circumstances in which you would accept A are also those in which the IRR on the incremental investment is less than the opportunity cost of capital.
The cash flows for two mutually exclusive projects are given as follows: Co C1 C2 C3 Project +7,800 +7,800 +7,800 -20,000 +25,000 Y -20,000 a. Which project would you choose using the NPV method if the discount rate is 5%? b. Which project would you choose using the IRR method?
QUESTIONS Consider the following payoff Table The State of Nature Decision Alternative 0.82 1-0.82- 51 $₂ D1 5 8 0₂ 5 9 D₂ 14 4 What is the payoff value for the D2 under $2 should be to keep the optimal solution always optimal? Do not writ the sign > or <) (Round your answer to 2 decimal places)
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Consider the following two projects: Project Year 0 Year 1 Year 2 Year 3 Year 4 Discount Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Rate A - 100 40 50 60 N/A 0.13 B - 73 30 30 30 30 0.13 The net present value (NPV) of project B is closest to: O A. 17.9 В. 20.3 C. 40.6 O D. 16.2 O O
.5ו Comparing Investment Criteria. onsiuer uie 1onOwing two inutuany exclusive projects: Cash Flow (B) 1TT Year Cash Flow (A) S415,000 -$3,500 49,000 1,920 57.000 1,390 74,000 1,420 530,000 1,050 4 Whichever project you choose, if any, you require a 13 percent return on your investment. a. If you apply the payback criterion, which investment will you choose? Why? b. If you apply the NPV criterion, which investment will you choose? Why? 8If you apply the IRR criterion, which investment will you choose? Why2 d. If you apply the profitability index criterion, which investment will you choose? Why? e. Based on your answers in (a) through (d), which project will you finally choose? Why?
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In the long run, which plan has the higher payout? Answer Plan A Payout P(Payout) Plan B Payout P(Payout) -$20,000 $15,000 $40,000 0.4 0.17 -$35,000 0.46 -$10,000 0.37 0.43 $20,000 0.17 O Plan A O Plan B