Find out the initial probability, Corporate Finance

a)    The option to expand the capacity of a project can be viewed as owning what kind of option written on the underlying project?  Explain

b)    The option to shutdown a project can be viewed as owning what kind of option written on the underlying project?  Explain

c)    Gotham city faces the risk of attack based on threats it has received from the Joker, who is threatening to destroy a number of important pieces of infrastructure.  The police commissioner has estimated that with an expenditure of $10 million per week (the city does not pay taxes), they can reduce the risk of an attack by half.  Assuming an initial probability of 30% that the attack will succeed and no one is actually injured in the attack, what is the minimum amount of economic damage the Joker would have to inflict in an attack to justify this expenditure?

d)    Assuming a successful attack would inflict $150 million worth of economic damage (and again, no human harm or further externalities are incurred) and that the probability of attack falls by a factor of 0.9 with each week that passes, after how many weeks should the city stop paying for the additional $10 million in police services? (you cannot pay for fractional weeks of extra protection)

e)    How does the volatility of outcomes (in terms of both probability and damage costs) impact the value of paying for extra protection?

 

 

Posted Date: 2/27/2013 6:46:08 AM | Location : United States







Related Discussions:- Find out the initial probability, Assignment Help, Ask Question on Find out the initial probability, Get Answer, Expert's Help, Find out the initial probability Discussions

Write discussion on Find out the initial probability
Your posts are moderated
Related Questions
Question: "The history of banking is so deeply littered with disasters that it could not be too hard to establish the causes... Fear, greed, loss of corporate memory, weak mana

Question: There are two stocks, stock A and stock B. The price of stock A today is $70. The price of stock A next year will be $50 if the economy is in recession, $80 if the ec

As the company''s sales and earnings increased, so did the demand for capital. The firm''s needs included inventory as well as additional space to house the inventory, computer fac

discuss advantages and disadvantages of alternative dividend polices,ieno dividend pay out for the pst five years,dividend of 50% of earnings paid out,a low but constant dividend p

Question 1: Participants in a recent radio discussion on the WTO were full of ideas. The WTO could do this, the WTO should do that, they said. One of them finally interjected:

Question : Alpha Ltd. - an 100% equity company - is following a payout ratio of 40% during the last several years. The financial managers of the company are now considering wh

#Minimum 100 words accepted#

Flower stands whose beneficial life spans a period of eight years was purchased on 1 August  2011 for $12,000.   It can be sold as scrap for $2,000.  The business has a financial y

you buy a car for ths 10000000 to be repaid in 3 years, with annua interest of 12%. preapare a loan amortization table

Table gives the average MAPE, again for all SKUs with positive preview demand together (overall) and also per preview demand class. We remark that despite of the large differences