Cha 5 1 5 6 9

Cha 5 1 5 6 9 - Rezoned apartments Point 2 Expected value...

This preview shows pages 1–4. Sign up to view the full content.

Cha 5 1 Plastic Year 1 Year 2 Year 3 Year 4 Demand for plastic sprinklers 97 115 136 141 Percentage of capacity used 48.5% 57.5% 68.0% 70.5% Machine requirements .485 .575 .680 .705 Labor requirements 1.94 2.30 2.72 2.82 Bronze Year 1 Year 2 Year 3 Year 4 Demand for bronze sprinklers 21 24 29 34 Percentage of capacity used 58.3% 66.7% 80.6% 94.4% Machine requirements 1.75 2.00 2.42 2.83 Labor requirements 3.50 4.00 4.84 5.66

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
5 For the small facility, NPV = .40 (\$12 Million) + .60 (\$10 Million) - \$6 Million = \$4.8 Million Do nothing, NPV = \$0 For the large facility NPV = .40(\$14 Million) + .60(\$10 Million) - \$9 Million = \$2.6 Million Therefore, build the small facility. \$12 Million \$14 Million \$10 Million \$10 Million High High Low Low .40 .40 .60 .60 Small Facility Large Facility \$6 Million \$9 Million \$0 Do nothing
6 Rezoned shopping center: Point 1: Expected value = .70(\$4 Million) + .30(\$5 Million) = \$4.3 Million

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Rezoned apartments: Point 2: Expected value = .60(\$4.5 Million) + .40(\$3 Million) = \$3.9 Million Since a shopping center has more value, prune the apartment choice. In other words, if rezoned, build a shopping center with a profit of \$4.3 Million - \$3 Million = \$1.3 Million If not rezoned: Point 3: Expected Profit is \$2.4 Million - \$2 Million = \$.4 Million Expected profit is .60(\$1.3 Million) + .40(\$.4 Million) = \$.94 Million \$4 Million \$3,000 x 1500 =\$4.5 Million \$2,000 x 1500 = \$3 Million \$5 Million \$4,000 x 600 = \$2.4 Million .70 .30 .60 Shopping Center Apartments Houses .60 .40 .40 Rezoned Not Rezoned 2 1 3 \$3 Million \$2 Million 9. The company should drill for an expected value of \$68,000. Lease .16X -100000 .40 X 50000 .24 X 10000 .2 X 200000...
View Full Document

This note was uploaded on 10/16/2010 for the course BUS 105 taught by Professor Singh during the Spring '08 term at UC Riverside.

Page1 / 4

Cha 5 1 5 6 9 - Rezoned apartments Point 2 Expected value...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online