BUS 640 Week 1 Economics of Risk and Problems

Topics: Mathematical finance, Discount rate, Net present value Pages: 3 (702 words) Published: October 29, 2014

This pack of BUS 640 Week 1 Economics of Risk and Problems contains:

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.

Problem II

Volkswagen is considering opening an Assembly Plant in Chattanooga, Tennessee, for the production of its 2012 Passat, tailored for the US market. The CEO of the company is considering two potential options for the size of the plant: one is a large size with a projected annual production of 150,000 cars, and the other one is a smaller size plant, which is cheaper to build, but can only produce up to 80,000 cars per year. Depending on the expected level of demand for these cars in the US, Volkswagen has to decide which option is more profitable. The discount rate is 6% and for simplicity purposes, the CEO is only evaluating a two-year horizon. The initial factory setup cost, the expected demand scenarios, profit, and probabilities are shows in the below table. Calculate the Net Present Value in each of the two options. Which option should the CEO choose and why? Please, show all your calculations.

Economics of Risk and Uncertainty Applied Problems. Please, complete the following 3 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.

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 inte...

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