Practice Quiz Chapter 10

. A new food processer is to be manufactured. The low-sales volume prediction (1,000 per year) has a subjectively estimated probability of 20%. The most likely market prediction is 2,500 units sold per year. The optimistic market prediction (2,500 sold the first year, with annual increase of 100) has an estimated probability of 15%. In all cases, the product and the market will last 4 years. The net revenue will be $5 per food processor. What is the probability distribution for the net revenue for the third year?

. If the company in Question 1 uses a MARR=10%, what is the expected value for the equivalent annual revenue?

. What is the standard deviation of the annual revenue in Question 1?

. Please see the PDF attachment to answer this question. A new piece of software has an expected first cost for development of $22,000. If net revenues are negative, the software will be discontinued after the first year. Calculate the expected PW of the revenues and of the software. The company uses an interest rate of 13% and the new software has a life of 6 years.

. WestTech considers a project that costs $900,000 and has a ten-year life. Sales are estimated at 150,000 units per year. Price per units is $45, variable cost per unit $20, and fixed costs are $300,000 per year. Suppose the estimates given for price, quantity, variable cost, and fixed costs are all accurate to with +15% and -15%. The corporate tax rate is 40% and the cost of capital is 15%. What is the net present worth of the project for the base case?

. WestTech considers a project that costs $900,000 and has a ten-year life. Sales are estimated at 150,000 units per year. Price per units is $45, variable cost per unit $20, and fixed costs are $300,000 per year. Suppose the estimates given for price, quantity, variable cost, and fixed costs are all accurate to with +15% and -15%. The corporate tax rate is 40% and the cost of capital is 15%. What is the net worth of the project for the best case?

. WestTech considers a project that costs $900,000 and has a ten-year life. Sales are estimated at 150,000 units per year. Price per units is $45, variable cost per unit $20, and fixed costs are $300,000 per year. Suppose the estimates given for price, quantity, variable cost, and fixed costs are all accurate to with +15% and -15%. The corporate tax rate is 40% and the cost of capital is 15%.What is the net worth of the project for the worst case?

. Please see the PDF attachment to answer this question. VentureTech considers the competing mutually exclusive projects with expected life of 4 years. The cost of initial investment at T=0 is $100,000 and annual net cash flows from each project are estimated. Which project is riskier, based on its standard deviation?

. Please see the PDF attachment to answer this question. VentureTech considers the competing mutually exclusive projects with expected life of 4 years. The cost of initial investment at T=0 is $100,000 and annual net cash flows from each project are estimated. Given the risk-free cost of capital is 12% and risk premium is 3%, which of the following is correct?

. VanTech Ltd. estimates launching a new system we require $80 million initial investment at year=0, given the required rate of return is 25%. A $10 million expenditure will be made at year=1. Then for the next 15 years, the net cash inflows will be $30 million per year, the chance is 80%, assuming the required rate of return is 20%. What is the net present worth of the project?

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