You are the Project Analyst for Nairobi Project Advisors who have been asked by a client to advise on which of the following two projects should be accepted. Each project costs US$ 10,000 and each entails a 12% cost of capital: Year Expected Net Cash flows Project X Project Y 0 ($ 10,000) ($ 10,000) 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 a) Advise on which project should be undertaken using the Pay Back Period (PBP), Net Present Value (NPV), Internal Rate of Return (IRR), and Modified Internal Rate of Return (MIRR) assuming: i. The projects are independent ii. The projects are mutually exclusive

You are the Project Analyst for Nairobi Project Advisors who have been asked by a client to advise on which of the following two projects should be accepted. Each project costs US$ 10,000 and each entails a 12% cost of capital: Year Expected Net Cash flows Project X Project Y 0 ($ 10,000) ($ 10,000) 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 a) Advise on which project should be undertaken using the Pay Back Period (PBP), Net Present Value (NPV), Internal Rate of Return (IRR), and Modified Internal Rate of Return (MIRR) assuming: i. The projects are independent ii. The projects are mutually exclusive

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 30P

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Given is a Decision Tree Diagram. The Payoffs 1-14 are given in the table below. Answer questions a, b, and c. 1/3 PayOff 5.. 1/3 PayOff 2 1/3 PayOff 3 0.30 0.50 PayOff 4 PayOff 5 Alternative A 0.20 PayOff 6 Alternative B 0.30 0.50 1/3 PayOff 7 1/3 2 PayOff 8 1/3 PayOff 9 5 PayOff 10 PayOff 11 0.20 PayOff 12 1/2 6 PayOff 13 3 1/2 PayOff 14 Payo 1 2 3 5 6 7 8 9 10 11 12 13 14 ff $ 5 -2 5 2 9 2 5 -5 3 4 4 -3 7 6 a) The value at node 4 is Blank 1 b) The value at node 8 is Blank 2 (in 1 decimal place) c) The best course of action or decision is to select alternative Blank 3
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Problem 3: A group of doctors is considering the construction of a private clinic. IF the medical demand is high (favorable market for the clinic), the physicians could realize a profit of P1,000,000. If the market is not favorable they could lose P400,000. If they don’t proceed at all, there is no cost. In the absence of any market research, the best the physician can guess is that there is a 50-50 chance the clinic will be successful. Required: Construct a decision tree to help analyze this problem. What should the doctors do? Problem 4: Continuing with problem 3, a firm open to conduct a market research involving the proposed venture and using analytical tools can give an accurate information, thus gave the following info: Probability of a favorable market given a favorable study is 0.82 Probability of an unfavorable market given a favorable study is 0.18 Probability of a favorable market given an unfavorable study is 0.11 Probability…