Accounting Question

Please see attached file for Qs

Unit 8 Assignment
Chapter 13: 2, 5, 13, 14
13-2. Expected value and standard deviation (LO13-1) Myers Business Systems is evaluating the
introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence
are given next:
Possible
Market Reaction
Low response ……………………………………
Moderate response …………………………….
High response …………………………………..
Very high response ……………………………
a.
b.
Sales
in Units
20
40
55
70
Probabilities
.10
.30
.40
.20
What is the expected value of unit sales for the new product?
What is the standard deviation of unit sales?
13-5. Coefficient of variation (LO13-1) Al Bundy is evaluating a new advertising program that could increase
shoe sales. Possible outcomes and probabilities of the outcomes are shown next. Compute the coefficient
of variation.
Possible Outcomes
Ineffective campaign ……………
Normal response ………………….
Extremely effective ……………..
Additional
Sales in Units
40
60
140
Probabilities
.20
.50
.30
13-13. Risk-adjusted discount rate (LO13-3) Waste Industries is evaluating a $70,000 project with the
following cash flows:
Year
1 ………………….
2 ………………….
3 ………………….
4 ………………….
5 ………………….
Cash Flows
$11,000
16,000
21,000
24,000
30,000
The coefficient of variation for the project is .847. Based on the following table of risk-adjusted discount
rates, should the project be undertaken? Select the appropriate discount rate and then compute the net
present value.
Coefficient
of Variation
Discount Rate
0 – .25 ………………
6%
.26 – .50 ………………
8
.51 – .75 ………………
10
.76 – 1.00 ………………
14
1.01 – 1.25 ……………….
20
13-14. Risk-adjusted discount rate (LO13-3) Dixie Dynamite Company is evaluating two methods of
blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is
relatively low in risk for this business and will carry a 12 percent discount rate. Method two (explosion) is
less expensive to perform but more dangerous and will call for a higher discount rate of 16 percent. Either
method will require an initial capital outlay of $75,000. The inflows from projected business over the next
five years are given next. Which method should be selected using net present value analysis?
Years
1 ………………….
2 ………………….
3 ………………….
4 ………………….
5 ………………….
Method 1
Method 2
$18,000
24,000
34,000
26,000
14,000
$20,000
25,000
35,000
28,000
15,000