Willy owns a small chocolate factory, located close to a river that o.pdf

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Willy owns a small chocolate factory, located close to a river that occasionally floods in the spring, with disastrous consequences. Next summer, Willy plans to sell the factory and retire. The only wealth he will have is the proceeds of the sale of his factory. If there is no flood, the factory will be worth $500,000. If there is a flood, then what is left of the factory will be worth $50,000 Willy can buy flood insurance at a cost of $0.10 for each $1 worth of coverage. Willy thinks that the probability that there will be a flood this spring is 1/10. Let W denote Willy\'s contingent wealth if there is a flood and WNF his contingent wealth if there is no flood. Willy\'s von Neumann Morgenstern utiity function is F, VVNF 10 (d) To buy insurance that pays him $x in case of a flood, Willy must pay an insurance premium of 0.1x. (The insurance premium must be paid whether or not there is flood.) If Willy insures for $x, then if there is a flood, he gets $x insurance benefits. Suppose that Willy has contracted for insurance that pays him $x in the event of a flood. Then after paying his insurance premium, his wealth will be WF then his wealth will be WNr - If Willy has this amount of insurance and there is no flood, Solution Answer:- WF =(1-.1)x Reason:- Because when you have a flood the insurance company pays you pay ( (1-.1)x ) WNF=0.1x If there is no flood then you only pay the premium (.1).

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Exercise 12-4 Chipotle Mexican Grill began with a single location in 1993 and now operates more than 1,700 restaurants. Adapted versions of the company\'s income statements (in $000s) are as follows: 2015 2014 Revenue $4,501,223 $4,108,269 Restaurant operating costs Food, beverage, and packaging Labor Occupancy Other operating costs General and administrative expenses Depreciation and amortization Pre-opening costs Loss on disposal of assets 1,503,835 1,420,994 1,045,726 904,407 262,412 230,868 514,963 434,244 250,214 273,897 110,474 15,609 6,976 3,737,634 3,397,469 710,800 3,503 769,867 714,303 294,265 268,929 $475,602 $445,374 130,368 16,922 13,194 Total operating expenses Income from operations Interest and other income (expense), net Income before income taxes Provision for income taxes 763,589 6,278 Net income Solution Common Size Income Statement: 2015 2014 Revenue 100.00% 100.00% Restaurant Operating cost Food Beverage and Packaging 33.41% 34.59% Labor 23.23% 22.01% Occupancy 5.83% 5.62% Other Operating cost 11.44% 10.57% General and Admin expense 5.56% 6.67% Depreciation and Amortization 2.90% 2.69% Pre-opening Cost 0.38% 0.38% Loss on Disposal of asset 0.29% 0.17% Total Operating cost 83.04% 82.70% Income from operations 16.96% 17.30% Interest and Other incomes 0.14% 0.09% Income Before Income tax 17.10% 17.39% Provision for Income tax 6.54% 6.55% Net Income 10.57% 10.84%.

Exercise 12-4 Chipotle Mexican Grill began with a single location in .pdf

Willy owns a small chocolate factory, located close to a river that o.pdf

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Willy owns a small chocolate factory, located close to a river that o.pdf