题目

BU.520.601.T2.FA25 Final Exam

多项填空题

After long discussions at the annual Climate Summit, Turkey decides to implement environmental regulations to curb pollution. Specifically, a cap-and-trade scheme where heavy polluters purchase pollution permits from the clean manufacturers and clean manufacturers sell their permits to heavy manufacturers is adopted. Kurucu Printed Circuit Board Manufacturers (KPCBM) is considering investing in clean technologies so that it does not have to purchase any pollution permits for the next 10 years. The cost of this clean technology is $6 million. This technology also allows the firm to sell pollution permits to other firms at a price of $1 million in the next 10 years. Hence, the total cost of investing in the clean technology is $6 million - $1 million = $5 million. If the firm does not invest in clean technology, the cost of purchasing pollution permits in the next 10 years is $4.5 million. The firm estimates the probability of environmental regulations staying the same as 60%. It is also possible that the environmental regulations might be relaxed with probability 10% and become stricter with probability 30%. If environmental regulations become stricter, the price of the pollution permits will increase by 50% which means the firm will gain 50% more from pollution permit sales if it invests in clean tech or pay 50% more if it purchases pollution permits. If the regulations are relaxed, the prices of pollution permits will decrease by 50%. a. Which option should the firm choose using the expected value method? In the blank space, enter invest for investing in clean tech option and enter buy for purchasing permits for the next 10 years option. [Fill in the blank] b. The firm could perform a market study to identify how exactly the environmental regulations will change in the next 10 years. What is the expected value of this information (in million dollars)? (round your answer to 2 numbers after the decimal point) [Fill in the blank] c. It is known that the environmental regulations will not be relaxed but will either stay the same or become stricter in the next 10 years. For what values of the probability of stricter environmental regulations, the cost of investing in clean tech and purchasing permits in the next 10 years is the same? (Round your answers to 2 numbers after the decimal point.) [Fill in the blank]

查看解析

标准答案

Please login to view

思路分析

We start by restating the setup and the two competing strategies clearly so we can compare their expected costs under uncertainty. - If the firm invests in clean technology, the initial net cost today is 5 million (cost 6 million minus the 1 million in permits you can sell). In the next 10 years, the price environment could change the cost outcome: under a stricter regime, permit prices rise by 50%, so the net cost becomes 6 − 1.5 = 4.5 million; under a relaxed regime, permit prices fall by 50%, so the net cost becomes 6 − 0.5 = 5.5 million; if regulations stay the same, the net cost remains 5 million. - If the firm does not invest, the firm must purchase permits at a cost of 4.5 million today. In the next 10 years, the price environment could change the cost outcome: under stricter rules, permit costs rise by 50%, giving 4.5 × 1.5 = 6.75 million; under relaxed rules, permit costs fall by 50%, giving 4.5 × 0.5 = 2.25 million; if regulations stay the same, the cost remains 4.5 million. With these baseline numbers, we ......Login to view full explanation