Question

(a) Dennis Enterprises is confronted with the decision of investing Kshs 3000,000 under several possible states of nature. There are four decision alternatives available to the company as shown in the monthly payoff table below.

State of the Economy
Decision alternative Stagnant Slow Growth Rapid Growth
Stocks shs 200,000 shs 280,000 shs 600,000
Bonds shs 360,000 shs 240,000 shs 60,000
CDs shs 140,000 shs 300,000 shs 210,000
Mixture shs 90,000 shs 260,000 shs 430,000



i) Minimax regret approach (2 marks)

ii) Laplace approach (2 marks)

iii) Supposing the probabilities for stagnant, slow growth and rapid growth are

determined as 0.4, 0.25 and 0.35 respectively, recommend the best decision alternative on the basis of expected value (2 marks)






(b) Determine the IRR of a project with the following stream of cash flow and determine whether the project is viable or not. Interest rate is given as 11%. (4 marks)

Year CF
0 18,954
1 5,000
2 5,000
3 5,000
4 5,000
5 5,000

Answer 1

Answer:

018954 is the answer

Step-by-step explanation:

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