Question 1

Suppose that the market has a 70% chance of being favorable and a 30% chance of being unfavorable.A favorable market will yield a profit of $300,000,while an unfavorable market will yield a profit of $20,000.What is the expected monetary value (EMV)in this situation?

Accepted Answer

The answer of Suppose that the market has a 70%...

Question 2

Net present value will be greater:
A)as a fixed set of cash receipts occurs later rather than earlier.
B)if the future value of a cash flow is smaller.
C)for one end-of-year receipt of $1200 than for twelve monthly receipts of $100 each.
D)for a 4% discount rate than for a 6% discount rate.
E)All of the above are true.

Accepted Answer

The answer of Net present value will be greater:
A)as a...

Question 3

________ is a means of determining the discounted value of a series of future cash receipts.

Accepted Answer

The answer of ________ is a means of determining the...

Question 4

A new machine tool is expected to generate receipts as follows: $5,000 in year one; $3,000 in year two,nothing in the next year,and $2,000 in the fourth year.At an interest rate of 6%,what is the net present value of these receipts? Is this a better net present value than $2,500 each year over four years? Explain.

Accepted Answer

The answer of A new machine tool is expected to...

Question 5

Health Care Systems of the South is about to buy an expensive piece of diagnostic equipment.The company estimates that it will generate uniform revenues of $500,000 for each of the next eight years.What is the present value of this stream of earnings,at an interest rate of 6%? What is the net present value if the machine lasts only six years,not eight? If the equipment cost $2,750,000,should the company purchase it?

Accepted Answer

The answer of Health Care Systems of the South is...

Question 6

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5 percent,what is the approximate net present value of this investment?
A)$20,920
B)$26,160
C)$49,840
D)$70,920
E)$106,990

Accepted Answer

The answer of A capacity alternative has an initial cost...

Question 7

What are the four limitations of the net present value technique?

Accepted Answer

The answer of What are the four limitations of the...

Question 8

Describe how EMV might be used to analyze a capacity decision.

Accepted Answer

The answer of Describe how EMV might be used to...

Question 9

A firm is weighing three capacity alternatives: small,medium,and large job shop.Whatever capacity choice is made,the market for the firm's product can be "moderate" or "strong." The probability of moderate acceptance is estimated to be 40 percent; strong acceptance has a probability of 60 percent.The payoffs are as follows.Small job shop,moderate market = $24,000; Small job shop,strong market = $54,000.Medium job shop,moderate market = $20,000; medium job shop,strong market = $64,000.Large job shop,moderate market = -$2,000; large job shop,strong market = $96,000.Which capacity choice should the firm make?

Accepted Answer

The answer of A firm is weighing three capacity alternatives:...

Question 10

A firm is about to undertake the manufacture of a product,and it is weighing three capacity alternatives: small job shop,large job shop,and repetitive manufacturing.The small job shop has fixed costs of $3,000 per month,and variable costs of $10 per unit.The larger job shop has fixed costs of $12,000 per month and variable costs of $3 per unit.The repetitive manufacturing plant has fixed costs of $30,000 and variable costs of $1 per unit.Demand for the product is expected to be 1,000 units per month with "moderate" market acceptance,but 2,000 under "strong" market acceptance.The probability of moderate acceptance is estimated to be 60 percent; strong acceptance has a probability of 40 percent.The product will sell for $25 per unit regardless of the capacity decision.Which capacity choice should the firm make?

Accepted Answer

The answer of A firm is about to undertake the...

Question 11

One limitation of the net present value approach to investments is that investments with identical net present values may have very different cash flows.

Accepted Answer

Net present value only considers cash flows in and out of the investment and the timing of those cash flows. It does not take into account other aspects such as the size or duration of the cash flows. Therefore, two investments with the same net present value can have different cash flows, making it important to consider other factors as well when making investment decisions.

Question 12

Possible decision alternatives found in capacity EMV problems are future demands or market favorability.

Accepted Answer

The answer of Possible decision alternatives found in capacity EMV...

Question 13

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5 percent,the net present value of this investment is:
A)greater than $80,000 but less than $130,000.
B)greater than $130,000.
C)less than $30,000.
D)impossible to calculate,because no interest rate is given.
E)impossible to calculate,because variable costs are not known.

Accepted Answer

The answer of A capacity alternative has an initial cost...

Question 14

Net present value:
A)is gross domestic product less depreciation.
B)is sales volume less sales and excise taxes.
C)is profit after taxes.
D)ignores the time value of money.
E)is the discounted value of a series of future cash receipts.

Accepted Answer

Net present value is the discounted value of a series of future cash receipts, which takes into account the time value of money. It is used to determine the profitability of an investment or project. Options A, B, and C are not directly related to net present value. Option D is incorrect because net present value specifically takes into account the time value of money.

Question 15

The net present value of $10,000 to be received in exactly three years is considerably greater than $10,000.

Accepted Answer

The net present value of $10,000 received in three years will typically be less than $10,000 due to the time value of money and inflation.

Question 16

A retailer is considering building a large store.If the local economy experiences expansion,the firm expects the store to earn a $2,000,000 profit next year.If the local economy experiences a contraction,the firm expects the store to lose $400,000 next year.Analysts estimate a 20% chance for the local economy to experience an expansion next year (hence an 80% chance for contraction).What is the expected monetary value (EMV)of building the large store?
A)$1,600,000
B)$720,000
C)$2,000,000
D)$80,000
E)$1,520,000

Accepted Answer

The answer of A retailer is considering building a large...

Quiz 8: Capacity and Constraint Management

Suppose that the market has a 70% chance of being favorable and a 30% chance of being unfavorable.A favorable market will yield a profit of $300,000,while an unfavorable market will yield a profit of $20,000.What is the expected monetary value (EMV)in this situation?

Net present value will be greater:

________ is a means of determining the discounted value of a series of future cash receipts.

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5 percent,what is the approximate net present value of this investment?

What are the four limitations of the net present value technique?

Describe how EMV might be used to analyze a capacity decision.

One limitation of the net present value approach to investments is that investments with identical net present values may have very different cash flows.

Possible decision alternatives found in capacity EMV problems are future demands or market favorability.

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5 percent,the net present value of this investment is:

Net present value:

The net present value of $10,000 to be received in exactly three years is considerably greater than $10,000.