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Alcibides Inc. is considering the purchase of 2 - year racehorse named Box Spread. Information: The estimated purchase price of Box Spread at the upcoming
Alcibides Inc. is considering the purchase of year racehorse named Box Spread.
Information:
The estimated purchase price of Box Spread at the upcoming Keenland sale is expected to be
$ This cost can be depreciated for years to a book value of zero.
It is expected that Alcibiades Inc.s earnings will be sufficient that it can use all of the
depreciation
The estimated economic life of Box Spread race career and breeding is expected to be
years
Effective tax rate
Cost of capital
An economist at Xavier University's Equine Institute estimates the following annual revenues
and operating costs and their probabilities:
Revenues:
$ with probability of
$ with probability of
Operating Costs:
$ with probability of
$ with probability of
Questions:
Using a decision tree, determine the Box Spread's expected net present value. Should Alcibiades Inc.
purchase Box Spread.
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