A local business plans to invest $800 to host a fun run, and they expect to sell tickets worth $9,000 on the day of the event. If it rains, they won’t sell any tickets and the business will lose all the invested money. The weather forecast for the day of the fun run is a 35% chance of rain. Is this a good investment?

A local business plans to invest $800 to host a fun run, and they expect to sell tickets worth $9,000 on the day of the event. If it rains, they won’t sell any tickets and the business will lose all the invested money. The weather forecast for the day of the fun run is a 35% chance of rain. Is this a good investment?

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 20P: Alexander Industries is considering purchasing an insurance policy for its new office building in...

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There is an athletic organization named Jingle Jangle plans to invest P100,000 tohost soccer game. They expect to sell tickets worth P1,500,000 .However, if itrains on the day of game, they won't sell any tickets and the organization will lose all the money invested. Will you consider this a good investment, if the weather forecast on the day of game is 20 percent possibility of rain?
The UST Basketball club plans to invest 10000 php to host a basketball game. They expect to sell tickets worth 15000 php . But if one player will be injured on the day of game, they won't sell any tickets and the club will lose all the money invested. If the bad condition of any player from any team will happen for the day of the game is 20% possibility, is this a good investment?
Zoe Building Supply is considering erecting a barbed wire fence around its premises to control theft losses. The fence will cost $350,000 and have a 15-year useful life. They will also incur installation costs of $45,000. The fence is expected to reduce theft losses by $20,000 per year. The firm will no longer need the night security guard and will save $35,000 per year. Insurance premiums are expected to decrease from $65,000 per year to $50,000 per year. The fence will require annual maintenance that is estimated to cost $5,000. Zoe is in a 34% tax bracket and they have a 6% cost of capital. Should they install the fence? Use the discounted cash flow method (NPV and IRR). Show all calculations and support your recommendation with a clear explanation.
The owner of a small local flea market rents tables to vendors every Sunday. His only expense is the purchase of the building in which the flea market operates at a cost of $450,000. The owner expects to rent about 20 tables per week (1000 per year), and wishes to receive a 12% annual return on his investment in the building. What gross margin (in dollars) should the owner use?
A farmer in Vancouver faces a dilemma. The weather forecast is for hot weather, and there is a 50% chance that the temperature this weekend will be too hot and destroy his entire flower garden, which is worth some $60,000. He can take two possible actions to try to alleviate his loss if the temperature rises (the objective is to maximize his expected flower value). First, he could use mulch which helps keep soil temperatures low. This would cost $3,000, but he could still expect to incur damage of approximately $27,000 to $32,000. Second, he can use shade cloth which offers partial and temporary protection from the sun. This method is more expensive ($6,000), and also more effective. With the shade cloth, he could expect to incur as much as $16,000 to $22,000 of the loss. Compare the farmers expected values for the three alternatives he has, considering the various possible loss scenarios for the mulch and the shade cloth. Which alternative would you suggest the farmer take? Why?…
A businessman bought a used building and found that the roof insulation was insufficient. He estimated that with 6 inches of foam insulation he could lower his heating bill by $25 a month and the cost of air conditioning by $20 a month. Assuming that the first six months of the year are winter and the next six are summer, how much can you afford to spend on insulation if you expect to have the building for only two years? Assume i=1 ½ % per month.
A businessman bought a used building and found that the roof insulation was insufficient. He estimated that 6 inches of insulating foam could lower the heating bill by $25 per month and the cost of air conditioning by $20. Assuming that the first six months of the year are winter and the next six are summer, how much can you afford to spend on insulation if you expect to only have the building for two years? suppose i=1.5% per month
To generate leads for new business, Gustin Investment Services offers free financial planning seminars at major hotels in Southwest Florida. Gustin conducts seminars for groups of 25 individuals. Each seminar costs Gustin $3100, and the average first-year commission for each new account opened is $4600. Gustin estimates that for each individual attending the seminar, there is a 0.01 probability that he/she will open a new account. a. Determine the equation for computing Gustin's profit per seminar, given values of the relevant parameters. Round your answers to the nearest dollar. Profit (New Accounts Opened x $ 4600 -$ 3100
An entrepreneur is considering opening up a restaurant off of a popular biking trail. The start-up cost to open this restaurant off this popular biking trail is expected to be $350,000. The new restaurant is expected to lose $100,00 the first 2 years before becoming profitable in year three with a positive $75,000 cash flow. After becoming profitable, the cash flows are expected to grow at 20% per year for 5 years. What return can this entrepreneur expect given these estimates and should this project be accepted or rejected? You will need to calculate the MIRR and Payback Period for this proposed project in order to explain if this project should be accepted or rejected. Use MIRR and Payback Period to explain your reasoning for accepting or rejecting this project proposal
A newspaper is considering buying locked vending machines to replace open newspaper racks in the downtown area. The vending machines cost $75 each. It is expected that the annual revenue from selling the same quantity of newspapers will increase $12 per vending machine. The useful life of the vending machine is unknown. (a) To determine the sensitivity of rate of return to useful life, prepare a graph for rate of return versus useful life for lives up to 10 years. (b) If the newspaper requires a 15% rate of return, what minimum useful life must it obtain from the vending machines? (c) What would be the rate of return if the vending machines were to last indefinitely?
Jim Bingham is considering starting a small catering business. He would need to purchase a delivery van and various equipment costing $150,000 to equip the business and another $60,000 for inventories and other working capital needs. Rent for the building used by the business will be $30,000 per year. Jim's marketing studies indicate that the annual cash inflow from the business will amount to $125,000. In addition to the building rent, annual cash outflow for operating costs will amount to $50,000. Jim wants to operate the catering business for only five years. He estimates that the equipment could be sold at that time for 10% of its original cost. The working capital will be fully released for other purposes at the end of the six years. Jim uses a 14% discount rate. needed; Would you advise Jim to make this investment?
Boyd Enterprises is considering developing a new baseball souvenir for use in the new baseball stadium. It is very big, very bright, and very noisy! Boyd will immediately spend $50,000 on a design and test marketing study that will take a year to complete. If the fan focus groups hate it (30% probability) Boyd will abandon the project and receive nothing. If they love it (70% probability) then in Year 1 Boyd will invest $30,000 in new manufacturing equipment. Sales will begin in Year 2. If actual fans in the stadium love it (80% probability), Boyd will receive cash flows of $40,000 per year for 5 years starting in Year 2. If fans don't like them (20% probability) Boyd will only receive cash flows of $2,000 per year for 5 years. What is the expected NPV of the project? Boyd's WACC is 10%. Hint: Draw a decision tree. $9,068.22 $9,975.04 $10,972.55 $12,069.80 $13,276.78