Chapter 5
A firm has three investment alternatives. Payoffs are in thousands of dollars.
a) Using the expected value approach, which decision is preferred?
b) For the lottery having a payoff of $100,000 with probability p and $0 with probability (1 - p), two decision makers expressed the following indifference probabilities. Find the most preferred decision for each decision maker using the expected utility approach.
c) Why don’t decision makers A and B select the same decision alternative?
Difference in attitude toward risk. Decision maker A tends to avoid risk, while decision maker B tends to take a risk for the opportunity (Risk taker) of a large payoff. (Can be check by plotting the values).
Q#2. Alexander
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(Note: The smaller times should reflect higher utilities.) Lottery: p = probability of a 45 minute travel time (best time will be 45 min =10 and the worst time is 90 min=0 ) (1 - p) = probability of a 90 minute travel time
c) Use the lottery of part (b) and assume that the decision maker expresses indifference probabilities of | Route Open | Route Delays | Route A d1 | 8.0 | 6.0 | Route B d2 | 10.0 (45) | 0.0 (90) |
U(60)=.80*10+.20*0=8.0 and U(70)=.60*10+.30*0=6.0
What route should this decision maker select? Is the decision maker a risk taker or a risk-avoider?
Q#4. Three decision makers have assessed utilities for the following decision problem (payoff in dollars):
The indifference probabilities are as follows:
a) Plot the utility function for money for
c) iii): equal to about 0. When you roll two dice, it is impossible to roll a sum of 1. The lowest sum you can roll with two dice is 2.
1a. You get the same prize but the choice changes to $5,000 now or $5,250 in three years. What do you do?
ACC2131 Cost Information for Decision Making Week 3 (Chapter 2) Tutorial Solutions Semester 1, 2015 Note to students: Beware! These solutions are not necessarily model answers.
If each gains $25 from this transaction, which of the following conclusions can be drawn?
* There are three (3) schools of thought regarding risk. The first considers the positive and negative aspects of risk, but sees them as separate. The second group believes that there are benefits from treating threats and opportunities together, while the third school does not label uncertainties, but addresses uncertainty as part of “doing the job.” Argue the value of having a risk strategy despite the cost associated with it. Include an example to support
1. Write the six questions of the Wise Choice Process and answer each one as it relates to your situation
The lump-sum distribution. I knew a tax hit would result, but it’s the best option based on what I knew at the time.
The problems within the chapter illustrate that we have a tendency towards risk aversion when it pertains to gain while contrarily we become risk seeking when it comes to losses. Even though many of the questions within the chapter were conceptually the same, the contextual framing influenced our decision-making process. Framing can have influential effects on our considerations when we propose solutions. Thus, when we fail to understand that problems can be framed in a variety of ways, we are using imperfect perceptions of probability and it can influence our choices. When one’s focus is only on a particular question, the solution will be based on that framed mindset. While, on the contrary, if a problem can be framed in multiple ways, a truly objective solution can be found.
25. Name two places where you might find a keystone RJ45 jack in a building.
To illustrate this situation better – we use the following example. An individual A faces a 20% probability that he/she will have a car accident which
That for almost all cases below 50% probability of lease being granted we are better of not exercising the option to buy the development, and,
Frank $100,000 stock basis, $10,000 bond basis, $7,000 dividend, $3,000 capital gain. Kasha $900,000 stock basis, $90,000 bond basis, $63,000 dividend, $27,000 capital gain.
CHAPTER 21 Accounting for Leases ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis *1. Rationale for leasing. 1, 2, 4 1, 2 *2. Lessees; classification of leases; accounting by lessees. 3, 5, 7, 8, 14 1, 2, 3, 4, 5 1, 2, 3, 5, 7, 8, 11, 12, 13, 14 1, 2, 3, 4, 6, 7, 8, 9, 11, 12, 14, 15, 16 1, 2, 3, 4, 5, 6 *3.
CHAPTER 2 The Financial Statements BRIEF EXERCISES BE2–1 2008 2008 2008 Beginning Ending Retained 2008 2008 2008 Retained Earnings + Revenues – Expenses – Dividends = Earnings $28.2 + $43.3 – $38.2 – X = $30.6 X = $2.7 2008 Dividends as a percentage of 2008 net income: 2008 Dividends = $ 2.7 = 52.9% 2008 Net income ($43.3-$38.2) $ 5.1 BE2–2 1) Current Liabilities financed $32 billion of the assets.
profit. However, by using the ABC method to analyze and allocate "other operating costs" to each of the market segments the