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# ugba05cont - Fows are forecasted in real terms The real...

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Summer 2008 Ismail Ceylan UGBA 103 Discussion Section June 12, 2008 Page 1 of 1 Discussion Section #5 (Cont.) Problem 3: The president’s executive jet is not fully utilized. You judge that its use by other oﬃcers would increase direct operating costs by only \$20,000 a year and would save \$100,000 a year in airline bills. On the other hand, you believe that with the increased use the company will need to replace the jet at the end of three years rather than four. A new jet costs \$1.1 million and (at its current low rate use) has a life of 6 years. Assume that the company doesn’t pay taxes. All cash
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Unformatted text preview: Fows are forecasted in real terms. The real opportunity cost of capital is 8 percent. Should you try to persuade the president to allow other oﬃcers to use the plane? Problem 4: Consider the following rate of returns: State of Economy Probability of state of economy Stock A Stock B Stock C Boom 0.30 0.30 0.45 0.33 Good 0.40 0.12 0.10 0.15 Poor 0.25 0.01-0.15-0.05 Bust 0.05-0.06-0.30-0.09 Your portfolio is invested 30% each in A and C, and 40% in B. What is the expected return of the portfolio?...
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## This note was uploaded on 02/12/2012 for the course UGBA 101A taught by Professor Mccullough during the Spring '08 term at Berkeley.

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