ABC Operates a Factory in the United Kingdom $\quad$ $\quad$

question 29

Multiple Choice

ABC operates a factory in the United Kingdom.Because the company's existing factory doesn't have the capacity to meet the future demands,it is considering various options.Consider the payoff matrix that shows the payoff for each combination of decision and state of nature.Determine the best alternative using the maximax criterion. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { State of Nature }$
$\begin{array}{|c|c|c|}\hline \text { Decision Alte rnatiye } & \text { Low Demand } & \text { High Demand } \\\hline \text { Expand current facility } & \$ 4 \text { million } & \$ 5 \text { million } \\\hline \text { Build small factory } & \$ 3 \text { million } & \$ 5.5 \text { million } \\\hline \text { Build large factory } & -\$ 4 \text { million } & \$ 10 \text { million } \\\hline\end{array}$

• A)Expand current facility.
• B)Build small factory.
• C)Build large factory.
• D)Determine a new alternative.

Calculate and interpret the payback period for capital investments.

Determine the net present value (NPV) of an investment and understand its implications for project selection.

Compute the internal rate of return (IRR) and understand its role in investment decisions.

Distinguish between cash flows and accounting profit in investment appraisal.

---

Definitions:

Shares

Units of ownership interest in a corporation or financial asset.

Investment Value

The worth of an asset or a company to a particular investor based on individual investment requirements and expectations.

Shares

Units of ownership interest in a corporation or financial asset, providing a proportion of the profit to shareholders in the form of dividends.