Question
General Motors Corp. (GMC) and Chrysler Inc. (Chrysler), the two US giant automakers, are currently working on a pilot project of electric vehicle (EV) production.
General Motors Corp. (GMC) and Chrysler Inc. (Chrysler), the two US giant automakers, are currently working on a pilot project of electric vehicle (EV) production. GMC is working on the electric version of its highly demanded pick-up truck, Sierra, whereas Chrysler is working on the electric version of its 5 models across various brands, such as Dodge, Jeep, and Chrysler. GMC has already applied to the safety boards of California and New York for the approval of mass production. If GMC gets approval (which has a 60% probability), GMC can start manufacturing the EV-Sierra and earn a whopping net income of half a billion (500 million) dollars. Chrysler on the other hand, can also earn half a billion (500 million) dollars of net income if it can get approval from the safety boards of Florida, Texas and Illinois (which has a 60% probability), as each of its 5 models can bring in $100 million of net income each. (i) How much can GMC expect in payoff if it does get approval from the safety boards of California and NY for the mass production of its EV Sierra pick-up truck? (ii) How much can Chrysler expect in payoff if it does get approval from the safety boards of Florida, Texas and Illinois for the electric version of all of its five vehicles? (iii) Compute the SD (standard deviation) for GMs potential average net income following the approval. (iv) Compute the SD (standard deviation) for Chryslers potential average net income following the approval. (v) Which automaker do you think has lesser risk? Explain your choice.
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