BUSI 620 Week 7 Questions for Critical Thinking 7
Business 620
Critical Thinking Seven
Salvatore’s Chapter 14:
a) Discussion Questions: 12 and 15.
b) Problems: spreadsheet problems 1 and 2.
Froeb et al.’s Chapter 17:
a) Individual problems: 17–1 and 17–4.
Froeb et al.’s Chapter 19:
b) Individual problems: 19–5 and 19–6.
Salvatore’s Chapter 15:
a) Discussion Questions: 7.
b) Problems: 8, 10, and spreadsheet problem 1.
Discussion Question 12: What is the rationale behind the minimax regret rule? What are some of the less formal and precise methods of dealing with uncertainty? When are these useful?
Discussion Question 15: How does the adverse selection problem arise in the credit-card market? How do credit-card companies reduce the adverse selection problem that they face? To what complaint does this give rise?
Spreadsheet Problem 1: An individual has to choose between investment A and investment B. The individual estimates that the income and probability of the income from each investment are as given in the following table.
Investment A
Investment B
Income
Probability
Income
Probability
4,000
0.2
4,000
0.3
5,000
0.3
6,000
0.4
6,000
0.3
8,000
0.3
7,000
0.2
Using Excel’s statistical tools, calculate the standard deviation of the distribution of each investment.
Which of the two investments is more risky?
Which investment should the individual choose?
Spreadsheet Problem 2: An individual is considering two investment projects. Project A will return a zero profit if conditions are poor, a profit of 4 if conditions are good, and a profit of 8 if conditions are excellent. Project B will return a profit of 2 if conditions are poor, a profit of 3 if conditions are good, and a profit of 4 if conditions are excellent. The probably distribution of the conditions is as follows:
Conditions:
Poor
Good
Excellent
Probability
40%
50%
10%
Using Excel, calculate the expected value of each project and identify the preferred project according to this criterion.
Assume that the individual’s utility function for profit is U(X) =X-0.05X2. Calculate the expected utility of each project and identify the preferred project according to this criterion.
Is this individual risk adverse, risk neutral, or risk seeking? Why?
Froeb et al.’s Chapter 17:
a) Individual problems: 17–1 and 17–4.
Individual Problem 17-1: You’re the manager of global opportunities for a US manufacture, who is considering expanding sales into Europe. Your market research has identified three potential market opportunities: England, France, and Germany. If you enter the English market, you have a 0.5 chance of a big success (selling 100,000 units at a per-unit profit of 8), a 0.3 chance of moderate success (selling 60,000 units at a per-unit profit of 6), and a 0, 2 chance of failure (selling nothing). If you enter the German market, you have a 0.2 chance of huge success (selling 150,000 units at a per-unit profit of 10), a 0.5 chance of moderate success (selling 70,000 units at a per-unit profit of 6), and a 0.3 chance of failure (selling nothing). If you can enter only one market, and the cost of entering the market (regardless of which market you select) is 250,000, should you enter one of the European markets? If so, which one? If you enter, what is your expected profit?
Individual Problem 17-4: Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for possible future product and estimates that the reservation value of 250,000. Your dealings on the second-hand market lead you to believe that these is a 0.4 chance a random buyer will pay 300,000 a 0.25 chance the buyer will pay 350,000, a 0.1 chance the buyer will pay 400,000, and a 0.25 chance it will not sell. If you must commit to a posted price, what prices maximizes profit?
Froeb et al.’s Chapter 19:
b) Individual problems: 19–5 and 19–6.
Individual Problem 19-5: Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose you’re trying to sell a company a new accounting system that will reduce costs by 10%. Instead of naming that price, you offer to give them the product in exchange for 50% of their cost savings. Describe the information asymmetry, the adverse selection problem, and why soft selling is a successful signal.
Individual Problem 19-6: You need to hire some new employees to staff your start-up venture. You know that potential employees are distributed throughout the population as follows, but you can’t distinguish among them:
Employee Value
Probability
50,000
0.25
60,000
0.25
70,000
0.25
80,000
0.25
What is the expected value of five employees you hire?
Salvatore’s Chapter 15:
a) Discussion Questions: 7.
b) Problems: 8, 10, and spreadsheet problem 1.
Discussion Question 7:
a) When can the NPV and the IRR methods of evaluating investment projects provide contradictory results?
b) How can this arise?
c) Which method should then be used? Why?
Problem 8: John Piderit, the general management of the Western Tool Company, is considering introducing some new tools to the company’s product line. The top management of the firm has identified three types of tools (referred to as projects A, B, and C). The various divisions of the firm have provided the data given in the following table on these three possible projects. The company has a limited capital budget of 2.4 million for the coming year.
a) Which project(s) would the firm undertake if it used the NPV investment criterion?
b) Is this the correct decision? Why?
Problem 10: The MacBurger Company, a chain of fast-food restaurants, expects to earn 200 million after taxes for the current year. The company has a policy of paying out half of its net after-tax income to the holders of the company’s 100 million shares of common stock. A share of common stock of the company current sells for eight times current earnings. Management and outside analysts expect the growth rate of earnings and dividends for the company to be 7.5 percent per year. Calculate the cost of equity capital to this firm.
Spreadsheet Problem 1: The benefits and costs of an investment project (the purchase of a piece of machinery) are those given in the following table. In excel, calculate the net revenue, or the revenue from the investment minus the costs; the present value coefficient for every year, and the present value of the net revenue. Add together column F to get the net present value of the project. Should the firm purchase the machine?
Important information for writing discussion questions and participation
Welcome to class
Hello class and welcome to the class and I will be your instructor for this course. This is a -week course and requires alot of time commitment, organization, and a high level of dedication. Please use the class syllabus to guide you through all the assignments required for the course. I have also attached the classroom policies to this announcement to know your expectations for this course. Please review this document carefully and ask me any questions if you do. You could email me at any time or send me a message via the “message” icon in halo if you need to contact me. I check my email regularly, so you should get a response within 24 hours. If you have not heard from me within 24 hours and need to contact me urgently, please send a follow up text to
I strongly encourage that you do not wait until the very last minute to complete your assignments. Your assignments in weeks 4 and 5 require early planning as you would need to present a teaching plan and interview a community health provider. I advise you look at the requirements for these assignments at the beginning of the course and plan accordingly. I have posted the YouTube link that explains all the class assignments in detail. It is required that you watch this 32-minute video as the assignments from week 3 through 5 require that you follow the instructions to the letter to succeed. Failure to complete these assignments according to instructions might lead to a zero. After watching the video, please schedule a one-on-one with me to discuss your topic for your project by the second week of class. Use this link to schedule a 15-minute session. Please, call me at the time of your appointment on my number. Please note that I will NOT call you.
Please, be advised I do NOT accept any assignments by email. If you are having technical issues with uploading an assignment, contact the technical department and inform me of the issue. If you have any issues that would prevent you from getting your assignments to me by the deadline, please inform me to request a possible extension. Note that working fulltime or overtime is no excuse for late assignments. There is a 5%-point deduction for every day your assignment is late. This only applies to approved extensions. Late assignments will not be accepted.
If you think you would be needing accommodations due to any reasons, please contact the appropriate department to request accommodations.
Plagiarism is highly prohibited. Please ensure you are citing your sources correctly using APA 7th edition. All assignments including discussion posts should be formatted in APA with the appropriate spacing, font, margin, and indents. Any papers not well formatted would be returned back to you, hence, I advise you review APA formatting style. I have attached a sample paper in APA format and will also post sample discussion responses in subsequent announcements.
Your initial discussion post should be a minimum of 200 words and response posts should be a minimum of 150 words. Be advised that I grade based on quality and not necessarily the number of words you post. A minimum of TWO references should be used for your initial post. For your response post, you do not need references as personal experiences would count as response posts. If you however cite anything from the literature for your response post, it is required that you cite your reference. You should include a minimum of THREE references for papers in this course. Please note that references should be no more than 5 years old except recommended as a resource for the class. Furthermore, for each discussion board question, you need ONE initial substantive response and TWO substantive responses to either your classmates or your instructor for a total of THREE responses. There are TWO discussion questions each week, hence, you need a total minimum of SIX discussion posts for each week. I usually post a discussion question each week. You could also respond to these as it would count towards your required SIX discussion posts for the week.
I understand this is a lot of information to cover in 5 weeks, however, the Bible says in Philippians 4:13 that we can do all things through Christ that strengthens us. Even in times like this, we are encouraged by God’s word that we have that ability in us to succeed with His strength. I pray that each and every one of you receives strength for this course and life generally as we navigate through this pandemic that is shaking our world today. Relax and enjoy the course!
Hi Class,
Please read through the following information on writing a Discussion question response and participation posts.
Contact me if you have any questions.
Important information on Writing a Discussion Question
- Your response needs to be a minimum of 150 words (not including your list of references)
- There needs to be at least TWO references with ONE being a peer reviewed professional journal article.
- Include in-text citations in your response
- Do not include quotes—instead summarize and paraphrase the information
- Follow APA-7th edition
- Points will be deducted if the above is not followed
Participation –replies to your classmates or instructor
- A minimum of 6 responses per week, on at least 3 days of the week.
- Each response needs at least ONE reference with citations—best if it is a peer reviewed journal article
- Each response needs to be at least 75 words in length (does not include your list of references)
- Responses need to be substantive by bringing information to the discussion or further enhance the discussion. Responses of “I agree” or “great post” does not count for the word count.
- Follow APA 7th edition
- Points will be deducted if the above is not followed
- Remember to use and follow APA-7th edition for all weekly assignments, discussion questions, and participation points.
- Here are some helpful links
- The is a great resource
