1.You are considering the wholesale purchase of 10,000 computers for $6,000,000 with the idea of reselling them at retail. .

All cash inflows from sales are estimated as at the end of the year.

In the first year each computer will sell for $1,000. In the second year each computer will sell for $500 since it will then be considered an older model.At the end of the second year you will have to pay another company $50 per computer for the proper disposal of any remaining computers.

Each year, it is equally likely that there will be high sales or low sales.In a high sales year, you will sell 6,000 computers and in a low sales year you will only sell 3,000.

a)Draw a decision tree for this problem.

b)Should you purchase the computers? Use an opportunity cost of capital of 10% and show all work.

c)A school is looking to purchase 7,000 computers at the end of one year.If you have 7,000 to sell, they will purchase them for $2,500,000. If you cannot sell 7000 then they do not want to buy any.

i.Produce a new decision tree that shows the option to sell to the school.

ii.Does this option increase the value of this investment? What is thenew value of the total investment.