Examlex
Assume General Motors has a weighted average cost of capital of 10%. GM is considering investing in a new plant that will save the company $30 million over each of the first two years, and then $25 million each year thereafter. If the investment is $150 million, what is the net present value (NPV) of the project?
Risk Averse
A characteristic of individuals who prefer to avoid risk and would rather choose an option with a lower but more certain return than an option with a higher but uncertain return.
Von Neumann-Morgenstern
Pertains to a theorem used in expected utility theory, which provides an axiomatic basis for the selection of optimal choices under uncertainty.
Utility Function
An economic model that quantifies the satisfaction or happiness a consumer receives from consuming goods and services.
Expected Utility
A theory in economics that models how agents choose among risky alternatives to maximize their satisfaction.
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