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Bus 640 Managerial Economics week 1 assignment

Question # 00000307
Subject: Economics
Due on: 08/12/2013
Posted On: 08/05/2013 12:50 PM

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Economics of Risk and Uncertainty Applied Problems

Please, complete the following two applied problems in a Word or Excel document. Show all your calculations and explain your results. Submit your assignment in the drop box by using the Assignment Submission button.

.next.ecollege.com/pub/content/ee458bff-b6a4-427f-964d-9f2aa9c8fa6f/Week_1_Assignment_Study_Guide.docx">Week 1 Assignment Study Guide

1. A generous university benefactor has agreed to donate a large amount of money for student scholarships. The money can be provided in one lump-sum of $10mln, or in parts, where $5.5mln can be provided in year 1, and another $5.5mln can be provided in year 2. Assuming the opportunity interest rate is 6%, what is the present value of the second alternative? Which of the two alternatives should be chosen and why? How would your decision change if the opportunity interest rate was 12%? Please, show all your calculations.


2. An angel investor is considering investing in one of two start-up businesses and is evaluating the expected returns along with the risk of each option in order to choose the better alternative.

  • Business 1 is an innovative protein energy drink, which has ENPV of $100,000 with a standard deviation of $40,000.
  • Business 2 is a unique chicken wings dipping sauce with an ENPV of $60,000 and a standard deviation of $25,000.

a) Apply the coefficient-of-variation decision criterion to these alternatives to find out which is preferred by the angel investor, assuming that he/she is risk-averse.

b) Apply the maximin criterion, assuming that the worst outcome in Business 1 is to lose $5,000, whereas the worst outcome in Business 2 is to make only $5,000 in profit.

c) If you were the angel investor, what is your certainty equivalent for these two projects? Are you risk-averse, risk-neutral, or risk-lover?

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Bus 640 Managerial Economics week 1 assignment

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Managerial_Economics.docx (26.14 KB)
Preview: for xxxxxxx scholarships xxx money can xx provided in xxx lump-sum xx xxxxxxx or xx parts, where xx 5mln can xx provided xx xxxx 1, xxx another $5 xxxx can be xxxxxxxx in xxxx x Assuming xxx opportunity interest xxxx is 6%, xxxx is xxx xxxxxxx value xx the second xxxxxxxxxxxxxxxxxxxxx to Douglas, xx dollar xxxxxxxx xx the xxxxxxx period is xxxxx more than x dollar xxxxxxxx xx a xxxxxx period" (2010, xx 1 4) xxxx Douglas xxxxxxxxx xxxxxx that xxx money received xxxxx if deposited xxxx bank xxxx xxxxx interest xxxx means the xxxxxx received today xxxx be xxxxxx xxxx in xxx future as xxxxxxxx to today xxxx scenario xxx xx explained xx a formula xxxxxxxxxxxxx for the xxxxxxx value xxxxx x refers xx the number xx years in xxx sequence xxx x represents xxx rate, which xx this case xx the xxxxxxxxxxx xxxx of xxx the present xxxxx.....
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