Determine investment allocation that maximises expect npv, Cost Accounting

Suppose that $4 million is available for investment in three projects.  The probability distribution of the net present value earned from each project depends on how much is invested in each project.  Let It be the random variable denoting the net present value earned by project t.  The distribution of It depends on the amount of money invested in project t, as shown in Table (a zero investment in a project always earns a zero NPV).  Use dynamic programming to determine an investment allocation that maximises the expected NPV obtained from the three investments.

Table

 

Investment (millions)

Probability

Project 1

$1

P(I1 = 2) = 0.6

P(I1 = 4) = 0.3

P(I1 = 5) = 0.1

$2

P(I1 = 4) = 0.5

P(I1 = 6) = 0.3

P(I1 = 8) = 0.2

$3

P(I1 = 6) = 0.4

P(I1 = 7) = 0.5

P(I1= 10) = 0.1

$4

P(I1 = 7) = 0.2

P(I1 = 9) = 0.4

P(I1= 10) = 0.4

Project 2

$1

P(I2 = 1) = 0.5

P(I2 = 2) = 0.4

P(I2 = 4) = 0.1

$2

P(I2 = 3) = 0.4

P(I2 = 5) = 0.4

P(I2 = 6) = 0.2

$3

P(I2 = 4) = 0.3

P(I2 = 6) = 0.3

P(I2 = 8) = 0.4

$4

P(I2 = 3) = 0.4

P(I2 = 8) = 0.3

P(I2 = 9) = 0.3

Project 3

$1

P(I3 = 0) = 0.2

P(I3 = 4) = 0.6

P(I3 = 5) = 0.2

$2

P(I3 = 4) = 0.4

P(I3 = 6) = 0.4

P(I3 = 7) = 0.2

$3

P(I3 = 5) = 0.3

P(I3 = 7) = 0.4

P(I3 = 8) = 0.3

$4

P(I3 = 6) = 0.1

P(I3 = 8) = 0.5

P(I3 = 9) = 0.4

Posted Date: 3/9/2013 12:23:19 AM | Location : United States







Related Discussions:- Determine investment allocation that maximises expect npv, Assignment Help, Ask Question on Determine investment allocation that maximises expect npv, Get Answer, Expert's Help, Determine investment allocation that maximises expect npv Discussions

Write discussion on Determine investment allocation that maximises expect npv
Your posts are moderated
Related Questions
Relevant Costs and Decision-Making The relevance of costs will depend upon the purpose for that they are being utilized. Relevance is related to future decisions. The relevanc

Small Steps sells step stools. Their budget information is shown below. selling price: $40 per stool Variable expense:$30 per stool Fixed Expense:$24,000 use the above inform

Weighted Average Method - Work in Progress While this method is employed, all costs of production are considered in assigning costs to inventory. The method puts together open

Role of Cost Accounting in Organization Like part of their jobs, such cost accountants interpret results, and then report them to management and give analysis such assist deci

Extracts from P Co''s records for last month are as follows: BUDGET ACTUAL PRODUCTION 7,000 UNITS 7,200 UNITS Direct Material $42,000 $42,912 Calculate

Considerations in Variance Investigation As already notice above, not all variances are investigated; this is only the material and meaningful as for cost control reasons vari

i want some informations about elements of manufacturing cost

describe the procedures involved in payroll labour cost accounting

A company is evaluating the following lease or buy option. A four year lease with annual payments of $25,000 payable at the beginning of the year.The tax shield is available at

Break-Even Calculations As they say, a picture is significance a thousand words, and this is undoubtedly true for the CVP graphic just presented. Though, everyone is not an art