Nanyang Business School CF—Final Exam The following test consists of 4 questions, worth 150 points. Answer to the questions to the best of your ability. This is an individual test. You may use any...

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Answered Same DayNov 26, 2021

Answer To: Nanyang Business School CF—Final Exam The following test consists of 4 questions, worth 150 points....

Ishmeet Singh answered on Dec 01 2021
158 Votes
Ques_1
    Cost of Opening factory    $ 200,000,000
    Cost of Closing factory    $ 150,000,000
    Fixed Cost    $ 400,000,000
    Price of Vaccine    $ 45
    Initial Demand (yr 1)    10
000000
        State A    Probability
    Growth (Y-o-Y)    20%    0.5
        State B
        -10%    0.5
    Strategy Given:
    1a)    12/1/20    12/1/21    12/1/22    12/1/23    12/1/24
    Years    0    1    2    3    4
    Opening Cost    -200
    Operating Cost        -400    -400    -400    -400
    Closing Cost                    -150
    Cost incurred    -200    -400    -400    -400    -550
    Revenues        450    540    648    972    Probability
                405    364.5    328.05    0.5    each
    Cash Flows    -200    50    140    248    422    Probability
        -200    50    5    -35.5    -221.95    0.5    each
    Discount Rate    12%
        In millions
    NPV    400.88    Probability
        -317.65    0.5    each
    Therefore, Net NPV    41.6
    So, yes the strategy is better than not opening.
    1b) Optimal Strategy    12/1/20    12/1/21    12/1/22    12/1/23    12/1/24
    Years    0    1    2    3    4
    Opening Cost        -200
    Operating Cost            -400    -400
    Closing Cost                -150
    Cost incurred    0    -200    -400    -550    0
    Revenues        450    540    648        Probability
                405    364.5        0.5
    Cash Flows    0    250    140    98    0    Probability
        0    250    5    -185.5    0    0.5
    Discount Rate    12%
        In millions
    NPV    404.58    Probability
        95.17    0.5    each
    Therefore, Net NPV    249.9
    So, yes the strategy is better opening in year 1 & closing in year 3.
    1c)
        12/1/20    12/1/21    12/1/22    12/1/23    12/1/24
    Years    0    1    2    3    4
    Opening Cost        -200
    Operating Cost            -400    -400
    Closing Cost                -150
    Cost incurred    0    -200    -400    -550    0
    Revenues        450    540    756        Probability
                405    283.5        0.5
    Cash Flows    0    250    140    206    0    Probability
        0    250    5    -266.5    0    0.5
    Discount Rate    12%
        In millions
    NPV    481.45    Probability
        37.51    0.5    each
    Therefore, Net NPV    259.5
    So, yes the strategy is better opening in year 1 & closing in year...
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