Expected value and standard deviation of profit

Reference no: EM13700181

Jamie Dixon is the operations manager for Pitt Corp, a real estate investment firm. Jamie must decide if Pitt Corp is going to invest in a strip mall in Oakland. If the strip mall is highly successful, after tax profits will be $100,000 per year. Moderate success would yield an annual profit of $50,000, while the project will lose $10,000 per year if it is unsuccessful. Past experience suggests that there is a 40% chance that the project will be highly successful, a 40% chance of moderate success, and a 20% probability that the project will be unsuccessful. The project requires an $800,000 investment. If Pitt Corp has an 8% opportunity cost on invested funds of similar riskiness, should the project be undertaken? In your answer, calculate the expected value and standard deviation of profit.

Reference no: EM13700181

Questions Cloud

Should food advertising to children be banned : Should food and beverage advertising to children be banned? What about for other types of products as well? Is it unethical for food companies to target their ads towards children? In a period when most parents are working, how are children to be pro..

Disadvantage of producing inputs within a firm : Which of the following is the primary disadvantage of producing inputs within a firm?

Successful man make a donation : A successful man make a donation to his Sister for building a new store and upgrading shops, as well as for establishing a store fund. The donation is planned to be spent as follows: $200,000 each year for the first three years, $250,000 each year fo..

What are price floors and price ceilings : What are price floors and price ceilings? How could a business maintain its level of profitability if forced to accept price ceilings? Use a business in your response. For example, a coffee shop could ... Please do not use a coffee shop in your examp..

Expected value and standard deviation of profit : Jamie Dixon is the operations manager for Pitt Corp, a real estate investment firm. Jamie must decide if Pitt Corp is going to invest in a strip mall in Oakland. If the strip mall is highly successful, after tax profits will be $100,000 per year.

Consider a new per-worker employment tax on workers : Consider a new per-worker employment tax on workers (where previously there was no tax). Outline the consequences of this tax on the local labor market. Use appropriate, clear, and well-labeled diagrams. In your answer show (1) the burden of the tax ..

Fiscal policy to fight against recession-rising unemployment : Suppose that U.S. government actively uses the fiscal policy to fight against recession and rising unemployment. To incorporate this behavior of government into the model, let’s assume that the government spending equation is given by where 0.

Annualized percentage yield on the residential mortgage : Assume that the treasury bonds are currently priced to yield 4% if held until maturity. Assume that the bank requires a premium of 150 basis points in the mortgage's annualized yield over Treasury bond yields before it will lend in the residential mo..

Design a special atm machine : design a special ATM machine to be used by needy people - The association supplies the needy person with a pin number to be able to use the ATM machine.

User Account

All Pages