Chapter 13
2. Lowe Technology Corp. is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are given.
Possible Market Reaction Sales in Units Probabilities
a.) What is the expected value of unit sales for the new product?
D (x) P (=) DP
b.) What is the standard deviation of unit sales?
3. Northern Wind Power, a new age energy company, is considering the introduction of a product intended to use wind as an energy-producing device. The possible level of unit sales and the probability of their occurrence are given.
Acceptance Potential Sales in Units Probabilities
a.) What is the expected value of unit sales for the new product?
b.) What is the standard deviation of unit sales?
4. Shack Homebuilders, Limited, is evaluating a new promotional campaign that could increase home sales. Possible outcome and probabilities of the outcomes are shown below. Compute the coefficient of variation.
Possible Outcomes Additional Sales in Units Probabilities
7. Five investment alternatives have the following returns and standard deviations of returns.
Alternatives Returns: Expected Value Standard Deviation
A……………………………………. $ 1,200 $ 300
B………………………………… 800 600
C………………………………… 5,000 450
D………………………………… 1,000 430
E………………………………… 60,000 13,200
Using the coefficient of variation, rank the five alternatives from lowest risk to highest risk.
10. Sensor Technology wishes to determine its coefficient of variation as a company over time. The firm projects the following data (in millions of dollars):
Year Profits: Expected Value Standard Deviation
a.) Compute the coefficient of variation (V) for each time period.
b.) Does the risk (V) appear to be increasing over a period of time? If so, why might this be the case?
11. Tim Trepid is highly risk-averse while Mike Macho actually enjoys taking a risk.
a.) Which one of the following four investments should Tim choose? Compute coefficients of variation to help you in your choice.
b.) Which one of the four investments should Mike choose?
The coefficient of variation for the project is 0.726.
Based on the following table of risk-adjusted discount rates, should the project be undertaken? Select the appropriate discount rate and then compute the net present value.
Coefficient of Variation Discount Rate
Appendix B
Years Cash Inflows PVIF @ 12% PV
21. Allison’s Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool sweaters. A second option would be to enter the cashmere sweater market with a new line of high-quality designer label products. The marketing department has determined that the wool and cashmere sweater lines offer the following provability of outcomes and related cash flows.
Expand Wool Sweaters Line Enter Cashmere Sweaters Line
Present Value of Present Value of Expected Sales Probability Cash Flows from Sales Probability Cash Flows for Sales
The initial cost to expand the wool sweater line is $110,000. To enter the cashmere sweater line either initial cost in designs, inventory, and equipment is $125,000.
a.) Diagram a complete decision tree of possible outcomes similar to Figure 13-8 on page 421. Note that you are dealing with thousands dollars rather than millions. Take the analysis all the way through the process of computing expected NPV (last column for each investment).
(1) (2) (3) (4) (5) (6)
Present Value
of Cash Flow NPV Expected NPV
Expected From Sales Initial Cost (3)-(4) (2) x (5)
Sales Probability ($ thousands) ($ thousands) ($ thousands) ($ thousands)
Expected NPV = $ 21,000
0)
Expected NPV = $ 41,000
b.) Given the analysis in part a, would you automatically make the investment indicated?
24. Treynor Pie Co. is a food company specializing in high-calorie snack foods. It is seeking to diversify its food business and lower its risks. It is examining three companies-a gourmet restaurant chain, a baby food company, and a nutritional products firm. Each of these companies can be bought at the same multiple of earnings. The following represents information about the companies.
Correlation with Sales Expected Earnings Standard Deviation
Treynor Pie ($ millions) ($ millions) in Earnings
Company Company ($ millions)
a.) Using the last two columns, compute the coefficient of variation for each of the four companies. Which company is the least risky? Which company is the most risky?
b.) Discuss which of the acquisition candidates is most likely to reduce Treynor Pie Company’s risk? Explain why.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Our Services
Custom Writings Help is a Quality-Oriented Company in Online Writing as a result of hiring exceptional professionals to execute clients' tasks.
Essays
At Custom Writings Help,We understand the struggle of research paper writing, and that is why at Custom WritingS Help, we are all out to help you. We pride ourselves on having a team of clinical writers. The stringent and rigorous vetting process ensures that only the 'BEST' Writers are chosen for the job. We have highly qualified Ph.D. and MA writers working with us; we equally offer these experienced writers specific bonuses and incentives to make them deliver highly original, unique, and informative content at reasonably low prices.
Admissions
Thesis Writing Service
Worlwide, Many Masters Students are struggling with Thesis Completion. A thesis is likely to be the longest and most challenging piece of work a student has ever completed. However, unlike essays and other assignments, a student can pick a particular interest topic and work on their initiative. Fortunately, we are there for you. At Custom Writings Help, you are assured of an authentic, imaginative, informative, linguistically great, and advantageous thesis that adheres to all your needs. So, why continue considering different writers when you have discovered the best in the field?
Editing
Custom Papers
Not a single student can avoid writing custom papers. However, a total lack of experience, skills, and time makes it very hard to produce a superb writing piece. Therefore, if you are seeking professional help, turn to us. Our specialized and experienced writers compose a variety of model papers, including custom essays, college term papers, research papers, book reports, MBA essays, executive summaries, dissertations, Ph.D. theses, admission essays, and research proposals for college and university students at any level.
Coursework
Essay Writing
Most of the students disregard the critical principles of essay writing and compose papers below sensible guidelines. Therefore, with Custom Writings Help, one should not worry about his/her essay. Our Writers compose informative and engaging content on all complexities and topics. We write meaningful and smart essays while prioritizing all aspects that bring about a good grade, such as impeccable grammar, proper structure, zero-plagiarism, and conformance to guidelines.
Coursework
Coourse Work Writing
Don't let the seemingly never-ending onslaught of writing assignments get you down. If you are looking where to get course work assistance online, the writers at Custom Writings Help are here to assist you with all of your writing needs. We undertake to unique delivery of papers that meet the professor's requirements. The content is proofread, edited, and checked plagiarism before submission to customers. No matter how big or small your work is, we will deliver on time. Try US Now! !
Coursework
Dissertation Writing Service
High-Quality Dissertation Writing Services are rare. They require Ph.D. academicians – not easily found. However, are an exception. The years, time, and resources we have invested in the dissertation world has given us a competitive advantage over others. Choose to come to Custom Writings Help; You will find perfect Ph.D. consultants who have written hundreds of dissertations theses ready to help you. Let our dissertation-writing services help you craft your dissertation, for you are assured we will give you the results.