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Table N1 N2 N3 A1:Full tooling +800 +400 400 A2@Minimum +500 +150 100 Tooling) A3:No Tooling -400 -100 0 3.The facilities of an existing chemical plant must be increased if the company is to continue its operation. There are two alternatives. One alternative is to expand the present plant .The expansion would cost $130,000. Additional labor cost would be $150,000 per year, while additional costs for overhead, depreciation , property taxes and insurance would be $60,000 per year. The second alternative requires construction and operation of new facilities at a location about 50 miles from the present plant. This alternative is attractive because cheaper labor is available at this location . The new facilities would cost $200,000.labor cost would be $120,000 per year. Overhead cost would be $ 70,000 per year. Annual insurance and property taxes would amount to 2% of the initial cost. All other costs except depn would be the same at each location. If the min. acceptable return on any unnecessary investment is 9% per year after tax of 35% , determine the min. recovery period for the facilities at the distant location for this alternative to meet the required incremental return. The salvage value should be assumed to be zero and straight line depn must be used. 3. A chemical company is considering replacing batch reactor with a continuous reactor . The old unit cost $40,000 when new 5 years ago and depn has been charged on a straight line basis using an estimated service life of 10 years with a final salvage value of $1000. 4. The new unit would cost $ 70,000. It would save $15,000per year in expenses not including depn. The SLM period is taken to be 10 years with a zero salvage value. All costs other than those for labor, insurance, taxes and depn may be assumed to be the same for both units. The old unit can now be sold for $5,000.Income tax is 35 % per year. If the after tax min. acceptable ret on any investment is 15% , should the replacement be made? 5. A proposed chemical plant will require a fixed capital investment of $10M. it is estimated that the working capital will be 25 % of the total cap. Investment . annual depn costs are estimated to be 10% of the fixed capital investment. If the annual profit will be $3M, determine the % return on the total investment and the payout period.Classwork: 1. Consider that your own rights to a plot of land under which there may or may not be oil. You are considering three alternatives : doing nothing(don't drill), drilling at your own expense of $500,000, or "farming out" the opportunity to someone who will drill the well and give you part of the profit if the well is successful . You see three possible states of nature : a dry hole, a mildly interesting small well and a very profitable gusher. You estimate the probabilities of the three states of nature Pj and the nine outcomes Oij as shown in the table. The First thing you can do is eliminate Al, since alternative A3is at least as attractive for all states of nature and is more attractive for at least one state of nature. A3 is therefore said to dominate Al Next, you can calculate the expected values for the surviving alternatives A2 and A3. Table Alternative State of State of Nature State of Expected Values Nature/Probability /Probabilty nature/Probability N1:Dry hole N2:Small well N3:Big Well P1= 0.6 P2=0.3 P3=0.1 A1:Don't drill 0 0 0 0 A2:Drill alone $-500,000 $300,000 9,300,000 720,000 A3:Farm out 0 $125,000 1,250,000 162,500 Solve the problem using decision tree. 2.you must decide whether to buy new machinery to produce product X and or to modify existing machinery. You believe the probability of a prosperous economy next year is 0.6 and a recession is 0.4. prepare a decision tree and used it to recommend the best course of action . The applicable payoff table of profits(+) and losses(-) is N1: Prosperity N2 : Recession Al( Buy new)N1: Prosperity +950,000 -200,000 A2(Modify) +700,000 +300,000 2. Your company has proposed to produce a component for an automobile plant, but it will not have a decision from that plant for six months. You estimate the possible future states and their probabilities as follows:Receive full contract(N1), with probability=0.3);receive partial contract (N2,) with probability =0.2;and lose award (no contract)(N3) with probability =0.5)Any tooling you use on the contract must be ordered now. If your alternatives and their outcomes (in thousands of dollars) are as shown in the following table, what should be your decision