Risk and probability Micro-Pub, Inc., is considering the purchase of one of two microfilm cameras, R...
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Risk and probability Micro-Pub, Inc., is considering the purchase of one of two microfilm cameras, R and S. Both should provide benefits over a 10-year period, and each requires an initial investment of $2,000. Management has constructed the following table of estimates of rates of return and probabilities for pessimistic, most likely, and optimistic results: a. Determine the range for the rate of return for each of the two cameras. b. Determine the value of the expected return for each camera. c. Which camera purchase is riskier? Why? a. The range for the rate of return for camera R is %. (Round to the nearest whole number.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment Annual rate of return Pessimistic Most likely Optimistic Camera R Amount $2,000 15% 29% 31% C 0.29 0.51 0.20 Probability Amount 1.00 $2,000 Camera S 21% 26% 30% Probability 1.00 0.18 0.54 0.28 - X Risk and probability Micro-Pub, Inc., is considering the purchase of one of two microfilm cameras, R and S. Both should provide benefits over a 10-year period, and each requires an initial investment of $2,000. Management has constructed the following table of estimates of rates of return and probabilities for pessimistic, most likely, and optimistic results: a. Determine the range for the rate of return for each of the two cameras. b. Determine the value of the expected return for each camera. c. Which camera purchase is riskier? Why? a. The range for the rate of return for camera R is %. (Round to the nearest whole number.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment Annual rate of return Pessimistic Most likely Optimistic Camera R Amount $2,000 15% 29% 31% C 0.29 0.51 0.20 Probability Amount 1.00 $2,000 Camera S 21% 26% 30% Probability 1.00 0.18 0.54 0.28 - X
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Answer MicroPub Inc A Micro Film Camera R The calculation of range of rate of returns is as follows ... View the full answer
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
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