What is the probability that the net present value

Assignment Help Managerial Economics
Reference no: EM13975249

A construction firm considers whether or not to undertake a project to build a new retail outlet (shopping center). The construction is to be undertaken in period t = 0. The construction costs are subject to risks (randomness); there is a 50% probability that no major problems will occur in which case the costs are 50 , and a 50% probability that a major problem emerges in which case the costs are 150 . The construction firm can sell the outlet to a reliable retail chain for final delivery (and payment) in period t = 1 at a fixed contract price equal to 121 . The discount rate is 10%.

a. Find the expected net present value of the project.

b. Find the standard deviation of the net present value of the project.

c. What is the probability that the net present value of the project is negative?

d. Discuss whether the construction firm should undertake the project. Bring up arguments in favor and against undertaking the project based on the findings in a)-c).

Reference no: EM13975249

Questions Cloud

What is the cost per percent reduction in cholesterol : How much did it cost, per person screened, for the initial cholesterol testing? Remember that each provider on site incurs costs to travel form the health department to the site and back.
Weighted mean for course performance : A student scored 90 on the midterm exam, 78 on the final exam, and 83 on the term project. If these  three components are weighted at 35%, 45%, and 20%, respectively, what is the weighted mean for her course performance?
Alan loved antique clocks and had a very impressive : Alan loved antique clocks and had a very impressive, expensive collection.  His grandfather had given him his first one, and at 44 years of age he now had 126 rare clocks worth well over $560,000 in total.  Alan saw an ad on Craigslist for a clock th..
Traditional land lines and have gone completely wireless : What is Apple’s stock (Iphones & Ipads) selling for now and how does it relate to their stock price 15 years ago? Would you be happier with a stock portfolio containing Apple and Motorola as opposed to Sprint and BellSouth?  How many of us have aband..
What is the probability that the net present value : What is the probability that the net present value of the project is negative? Find the standard deviation of the net present value of the project.
Problem regarding the maximum life spans : A reference book lists the following maximum life spans (in years) for animals in captivity: Source: The World Almanac and Book of Facts 2009, p. 329.
Explain the difference between factoring and pledging : Define the factoring of accounts receivable. How does factoring affect cash management? Explain the difference between factoring and pledging?
Conducts customer segment research : B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 55 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $1.2 million. ..
Preferred stock outstanding : Bullseye, Inc.'s 2008 income statement lists the following income and expenses: EBIT = $703,500, Interest expense = $53,000, and Taxes = $220,500. Bullseye's has no preferred stock outstanding and 270,000 shares of common stock outstanding. What are ..

Reviews

Write a Review

Managerial Economics Questions & Answers

  Identifying the total cost function

Superior Metals Corporation has seen its sales volume decline over past few years as the result of rising foreign imports. In order to raise sales, the company is planning a price reduction on luranium

  What profits they are earning on their business

what profits they are earning on their business. does it can satisfy the norms for any business to be legalized and does they are paying taxes as per the rules. can also be taken in to consideration while legalzing the business?

  Capital production elasticity from the regression output

Test whether coefficients of capital and labor are statistically significant and what are the labor production elasticity and the capital production elasticity from the regression output.

  How in your opinion should an american organization

One can think about cultural diversity in many ways. How, in your opinion, should an American organizations approach cultural diversity issues?

  Whats the change in price due to the subsidy

Set the price of tuna to its equilibrium level.  Now the price of tacos falls to $3.  At the current price of spaghetti, supply changes by what?

  Summaries the relative benefits to consumers

1.Summaries the relative benefits to consumers of

  The steady state economic growth path

What is meant by the steady state economic growth path ? What determines its slope?

  Computing optimal level of input required

Suppose ZCorp has following short run production function Q = 50X - 2X^2 where X is the only variable input used by ZCorp to product its product, Q.

  That international convergence of economic indicators is a d

It is often argued that international convergence of economic indicators is a desirable objective. Does this mean that countries should all seek to achieve the same rate of economic growth, monetary growth, interest rates, and budget deficits as a pe..

  Analyze the economic impact of current approaches

Analyze the economic impact of current approaches to controlling air pollution to determine which approach is the most effective

  How does companys advertising interact with pricing decision

When would a grocery store selling a product at MR

  How would you describe the shift in demand intuitively

Draw the new demand curve on the same graph as used in (a) above and solve for the new equilibrium price and quantity. How would you describe the shift in demand intuitively?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd