One of Mabel Smith’s investments is going to mature, and he wants to determine how to invest the proceeds of $30,000. Mabel is considering two new investments: a stock mutual fund and a one-year certificate of deposit (CD). The CD is guaranteed to pay an 8% return. Mabel estimates the return on the stock mutual fund as 16%, 9%, or 22%, depending on whether market conditions are good, average, or poor, respectively. Mabel estimates the probability of a good, average, and poor market to be 0.1, 0.85, and 0.05, respectively.
a. Construct a payoff matrix for this problem.
b. What decision should be made according to the maximax decision rule?
c. What decision should be made according to the maximin decision rule?
d. What decision should be made according to the minimax regret decision rule?
e. What decision should be made according to the EMV decision rule?
f. What decision should be made according to the EOL decision rule?
g. How much should Mabel be willing to pay to obtain a market forecast that is 100% accurate?

If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. there are two approaches to use to account for flotation costs. the first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. because the investment cost is increased, the project's expected return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. the second approach involves adjusting the cost of common equity as follows: . the difference between the flotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cost adjustment. quantitative problem: barton industries expects next year's annual dividend, d1, to be $1.90 and it expects dividends to grow at a constant rate g = 4.3%. the firm's current common stock price, p0, is $22.00. if it needs to issue new common stock, the firm will encounter a 6% flotation cost, f. assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. what is the flotation cost adjustment that must be added to its cost of retaine

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When the national economy goes from bad to better, market research shows changes in the sales at various types of restaurants. projected 2011 sales at quick-service restaurants are $164.8 billion, which was 3% better than in 2010. projected 2011 sales at full-service restaurants are $184.2 billion, which was 1.2% better than in 2010. how will the dollar growth in quick-service restaurants sales compared to the dollar growth for full-service places?