A firm must decide whether to construct a small, medium, or large stamping plant. A consultant’s report indicates a .20 probabil
ity that demand will be low and an .80 probability that demand will be high. If the firm builds a small facility and demand turns out to be low, the net present value will be $42 million. If demand turns out to be high, the firm can either subcontract and realize the net present value of $42 million or expand greatly for a net present value of $48 million. The firm could build a medium-size facility as a hedge: If demand turns out to be low, its net present value is estimated at $22 million; if demand turns out to be high, the firm could do nothing and realize a net present value of $46 million, or it could expand and realize a net present value of $50 million. If the firm builds a large facility and demand is low, the net present value will be −$20 million, whereas high demand will result in a net present value of $72 million. b. What is the maximin alternative? (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
1 answer:
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Answer:
3.3%
Explanation:
The yearly rate of return is calculated by taking the amount of money gained or lost at the end of the year and dividing it by the initial investment at the beginning of the year.
DATA
Future value = $25,000
Present value = $18,000
Time = 10 years
Formula:
Annual return =
Annual return =
Annal return = 3.3%