Once a day (weather permitting) a ferry transports cars from Island A to Island B. The ferry can carry up to 4 cars at a time. The number of cars, Y, that come to the port to be transported to Island B has the following mass function. (0.2 y = 0
Py(y) = 0.4 y = 1
10.4 y = 2
If a car arrives and finds 4 other cars already waiting, then it will leave and return some other day. The return of cars from Island B back to Island A is not of interest.
The weather in this area can be so bad that the ferry cannot make its trip. Assume this happens 50% of the time. When this happens, any cars that are waiting for the ferry trip will continue to wait. Also, any day there are no cars waiting to go to Island B, the ferry does not leave.
a. Assume you want to be able to answer the questions below. Build a Markov model of this process. Specifically do the following: define the states of the system, define the time period between observations of the state, a list of the events that can occur that affect the next state of the system and the P matrix.
b. What is the expected number of cars on the ferry when it makes a trip to Island B?
c. What is the probability the ferry does not make the trip on a given day?
d. If each car is charged $25 for the trip and it costs $75 in fuel for the ferry, what is the expected revenue/day for the ferry?

Shrieves casting company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by sidney johnson, a recently graduated mba. the production line would be set up in unused space in the main plant. the machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. the machinery has an economic life of 4 years, and shrieves has obtained a special tax ruling that places the equipment in the macrs 3-year class. the machinery is expected to have a salvage value of $25,000 after 4 years of use. the new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. each unit can be sold for $200 in the first year. the sales price and cost are both expected to increase by 3% per year due to inflation. further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 12% of sales revenues. the firm’s tax rate is 40%, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project (r), is 10%. define “incremental cash flow.” (1) should you subtract interest expense or dividends when calculating project cash flow?