1. ( Expected Value) Jacksons Cell Phone company estimates with a 60% probability that the sales of Cell phones in 2021 will be 45,000 units, about the same as in 2020. He plans to begin selling them on-line in 2021 and believe there is a 20% probability that potential sales would increase to 90,000 cell phones.. There is also a 20% probability that government regulations on selling cell phones online will limit sales to 30,000 units.

1. What is the expected sales of cell phones for 2021. Show your calculations.

INVESTMENT A INVESTMENT B INVESTMENT C

Cash flow Probability Cash flow Probability Cash flow Probability

$3,000 0.10 $2,000 0.10 $1,000 0.10

4,000 0.25 3,000 0.25 2,000 0.25

5,000 0.30 4,000 0.30 3,000 0.30

6,000 0.25 5,000 0.25 4,000 0.25

7,000 0.10 6,000 0.10 5,000 0.10

2. The Jackson corporation is considering 3 investment proposals above A,B and C. Each investment cost $10,000 each, will last 5 years, and will generate the following cash flows. The company cost of capital to the company is 10%.

1. Calculate the Payback period for each proposed investment. (show your work)
2. Calculate the Net Present Value (NPV) for each proposal. Which investment alternative should be chosen?
3. If the cost of capital was reduced to 6%, would that change your decision in (b) above? (show your work)

3. Assume the same data in #1 above.

1. Calculate the Expected value, Standard Deviation, and the Coefficient of Variation for each Investment alternative A,B,C (show your work for each)
2. Which Investment alternative is riskier? Why?