2 Problem 13-2 (Algo) Expected value and standard deviation [LO13-1] 5 Myers Business Systems is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their points occurrence are given next: Sales in Possible Market Reaction Units Probabilities Low response 19 9.19 eBook Moderate response 25 9.29 High response 49 9.30 Very high response 65 9.49 Hint a. What is the expected value of unit sales for the new product? Note: Do not round Intermediate calculations and round your answer to the nearest whole unit. Print Expected value units References b. What is the standard deviation of unit sales? Note: Do not round Intermedlate calculations. Round your answer to 2 decimal places. Standard deviation units4 Problem 13-4 (Algo) Coefficient of variation [LO13-1] 5 Shack Homebuilders Limited is evaluating a new promotional campaign that could increase home sales. Possible outcomes points probabilities of the outcomes are shown next. Additional Sales in Possible Outcomes Units Probabilities Ineffective campaign 38 9.49 eBook Normal response 119 9.49 Extremely effective 128 Compute the coefficient of variation. Hint Note: Do not round Intermedlate calculations. Round your answer to 3 decimal places. Coefficient of variation Print References5 Problem 13-6 (Algo) Coefficient of variation [LO13-1] 5 Possible outcomes for three investment alternatives and their probabilities of occurrence are given next. points Alternative 1 Alternative 2 Alternative 3 Outcomes Probability Outcomes Probability Outcomes Probability Failure 9.49 99 0.20 189 0.30 Acceptable 89 9.29 185 0.28 220 0.50 eBook Successful 155 0.49 220 0.60 375 0.28 Using the coefficient of variation, rank the three alternatives in terms of risk from lowest to highest. Note: Do not round Intermedlate calculations. Round your answers to 3 decimal places. Hint Coefficient of Rank Variation Print Alternative 1 Alternative 2 Alternative 3 References6 Problem 13-10 (Algo) Risk-averse [LO13-2] 5 Tim Trepid is highly risk-averse while Mike Macho actually enjoys taking a risk. points Returns : Expected Standard Investments Value Deviation Buy stocks $ 8,980 $ 6,590 Book Buy bonds 7, 680 2, 679 Buy commodity futures 19,908 28,090 Buy options 15, 108 18, 609 Hint a-1. Compute the coefficients of variation. Note: Round your answers to 3 decimal places. Print Coefficient of Variation Buy stocks References Buy bonds Buy commodity futures Buy options a-2. Which one of the following four investments should Tim choose? O Buy bonds O Buy stocks O Buy commodity futures O Buy options b. Which one of the four investments should Mike choose? Buy bonds O Buy stocks O Buy commodity futures O Buy options7 Problem 13-14 (Algo) Risk-adjusted discount rate [LO13-3] 5 Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. points Method one (implosion) is relatively low in risk for this business and will carry a 12 percent discount rate. Method two (explosion) is les expensive to perform but more dangerous and will call for a higher discount rate of 17 percent. Either method will require an initial capital outlay of $85,000. The inflows from projected business over the next five years are shown next. Years Method 1 Method 2 :Book 1 $ 30, 090 $ 20, 290 30, 209 22, 109 WN 39, 308 37, 108 36, 309 29, 098 Hint un 25, 708 77, 109 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods. Print a. Calculate net present value for Method 1 and Method 2. Note: Do not round Intermedlate calculations and round your answers to 2 decimal places. References Net Present Value Method 1 Method 2 b. Which method should be selected using net present value analysis? O Method 1 O Method 2 O Neither of these8 Problem 13-16 (Algo) Expected value with net present value [LO13-1] 5 Debby's Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. points The equipment will cost $24,500. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby's cost of capital is 13 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. eBook Cash Flow Probability $ 3, 840 0.4 5,280 9.2 8, 110 9.3 Hint 10,378 9.1 a. What is the expected value of the cash flow? The value you compute will apply to each of the five years. Print Expected cash flow References b. What is the expected net present value? Note: Negative amount should be Indicated by a minus sign. Do not round Intermediate calculations and round your answer to 2 decimal places Net present value c. Should Debby buy the new equipment? O Yes O No9 Identifying Risk Levels If risk is to be analyzed in a qualitative way. place the following investment decisions in order from the lowest risk to the highest risk: 10 a. New equipment points b. New market c. Repair of old machinery d. New product in a foreign market e. New product in a related market BBook f. Addition to a normal product line Print Essay Toolbar navigation References BIUS FEEV AVAV