The following table shows year end expected profits for each decision alternativ
ID: 1180031 • Letter: T
Question
The following table shows year end expected profits for each decision alternative over the next three years. Interest rates are expected to be stable at 4 percent over the next three years. Determine the value of each decision.
Profits in
Profits in
Profits in
Decision
Year 1
Year 2
Year 3
Max Profits
$52,000.00
$58,406.40
$44,994.56
Maximize
Revenue
$43,680.00
$51,916.80
$61,867.52
Value if Maximize Profits =
Value if Maximize Revenue =
Profits in
Profits in
Profits in
Decision
Year 1
Year 2
Year 3
Max Profits
$52,000.00
$58,406.40
$44,994.56
Maximize
Revenue
$43,680.00
$51,916.80
$61,867.52
Explanation / Answer
Value if Maximize Profits = 52,000/1.04 + 58,406.40/1.04^2 + 44,994.56/1.04^3 =$144000.00
Value if Maximize Revenue = 43,680/1.04 + 51,916.80/1.04^2 + 61,867.52/1.04^3 =$145000.00
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