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Assignment-3 solutions

# Assignment-3 solutions - Assignment 3 Answers Chapter 4 5...

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Assignment 3 Answers Chapter 4 5. \$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 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.

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6. \$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 Rezoned shopping center: Point 1: Expected value = .70(\$4 Million) + .30(\$5 Million) = \$4.3 Million 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
Chapter 7A 1. Use model 1.

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Assignment-3 solutions - Assignment 3 Answers Chapter 4 5...

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