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

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

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?...
View Full Document

This note was uploaded on 02/12/2012 for the course UGBA 101A taught by Professor Mccullough during the Spring '08 term at Berkeley.

Ask a homework question - tutors are online