Mckenzie Corporation's Capital BudgetingGiven value of Mckenzie in different scenarios,
Economic Growth
Probability
Without Expansion
With Expansion
Low
$20,000,000
$22,000,000
Normal
$25,000,000
$32,000,000
$43,000,000
$52,000,000
Expected value of the company within one year with Expansion is as follows: =
Formula of E (value of company)
= "P (Low)*V (Low) + P (Normal)*V (Normal) + P (High)*V (High)"
=0.3*22,000,000 +0.5*32,000,000 +0.2*52,000,000
= 6,600,000 + 16,000,000 + 10,400,000
= $33,000,000
= $33 Million.
Expected value of the company within one year without Expansion is as follows:
= P (Low)*V (Low) + P (Normal)*V (Normal) + P (High)*V (High)
= .30*20,000,000 + .50*25,000,000 + .20*43,000,000
=6,000,000 + 12,500,000 + 8,600,000
= $27,100,000
= $27.1 Million.
Answer 2)
Company's debt is $25 million.
Thus, the expected value of the company debt without expansion
= .30*25,000,000 + .50*25,000,000 + .20*25,000,000
= $7,500,000 + $12,500,000 + $5,000,000
= $25 million
Thus, the expected value of...
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