Kit mcq

This topic has 3 replies, 2 voices, and was last updated 8 years ago by John Moffat.

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May 19, 2018 at 12:01 am #452756
humai
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It is now felt that final scrap value of machine depends on 2 factors, whether or not a new supplier enters the market
(which would reduce the likely scrap value) and the strength of the dollar against other currencies( since sales
of used machines will be made abroad and invoiced in foreign currency) . Adverse effects each will reduce the scrap value by 10% of the fig used in investment appraisal. Relevant probabilities are as follows

New supplier Probability Strong $ Probability
Yes 0.4 yes 0.3
No 0.6 no 0.7

What is now expected value of scrap proceeds from machine 2?
a)$106800
b)$109000
C)$111600
d)$113000

Correct ans is C Sir please can you explain
May 19, 2018 at 9:20 am #452810
John Moffat
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It is impossible for me to explain, because you have not typed out all of the information. You have not said what the scrap proceeds are!!
May 19, 2018 at 10:47 am #452829
humai
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Sir scrap value of machine 2 is 120000
May 20, 2018 at 9:18 am #452917
John Moffat
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Best is to prepare a decision tree in the same way as you would for Paper F5.

You know the probabilities of each of the possible outcomes, and you can calculate what the various outcomes are. Then calculate the expected value.
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