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ass05_sol - First Option Probabilities 0.8 0.8 0.8 0.2 0.2...

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First Option Year 1 Year 2 D.r. Probabilities Quantity 0.8 0.8 0.64 15000 22500 12000 14400 0.8 0.2 0.16 15000 2400 0.2 0.8 0.16 10000 15000 2000 2400 0.2 0.2 0.04 10000 400 14000 19600 Unit Cost $8,500 $34,000,000 $81,600,000 Annualized $11,523,810 $11,523,810 $11,523,810 Total $45,523,810 $93,123,810 Income/unit $15,000 $60,000,000 $144,000,000 Net $14,476,190 $50,876,190 PV $13,160,173 $42,046,438 Total PV $55,206,612 2nd option Unit cost $10,000 Price 1 0.5 $10,000 $10,400 $40,000,000 $49,920,000 1 0.5 $10,000 $48,000,000 Cost $97,920,000 Net $20,000,000 $46,080,000 PV $18,181,818 $38,082,645 Total PV $56,264,463 Diff ($1,057,851)
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10% $20,000,000
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High volume cutoff 90000 Spot Prices $2 $4 Last year's demand 100000 Current year probability of demand
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