Refer to the Following:
a Firm Is Considering the Decision $\text { The economy }$

question 35

Multiple Choice

Refer to the following:
A firm is considering the decision of investing in new plants. The following is the profit payoff matrix under three conditions: it does not expand, it builds two new plants, or it builds one new plant. Three possible states of nature can exist--no change in the economy, the economy contracts and the economy grows. The firm has no idea of the probability of each state.
$\text { The economy }$
$\begin{array}{lccc} & \text { expands } & \text { contracts } & \text { unchanged } \\\hline \text { no new plants } & \$ 20 \text { million } & -\$ 3 \text { million } & \$ 4 \text { million } \\1 \text { new plant } & \$ 30 \text { million } & -\$ 6 \text { million } & \$ 6 \text { million } \\2 \text { new plants } & \$ 40 \text { million } & -\$ 12 \text { million } & \$ 8 \text { million }\end{array}$
-What decision would be made using the minimax regret rule?

• A) no new plants
• B) one new plant
• C) two new plants
• D) not enough information to tell

Understand the role of interest rates in investment decisions by individual firms.

Recognize the ethical and religious viewpoints on lending practices.

Understand the concept of interest and how it affects the value of money over time.

Calculate the present value of a future sum of money given an annual interest rate and timeframe.

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Definitions:

Network Delay

The time it takes for data to travel across a network from one point to another, influenced by factors such as transmission distances and network congestion.

PERT Networks

Project management tools used to plan, schedule, and control complex projects, showcasing tasks as a network of nodes.

Longest Time

The maximum duration taken to complete a specific task or set of tasks within a project or process.

PERT Project

Program Evaluation and Review Technique, a project management tool used to plan, schedule, and control complex projects.