A Family Business Is Considering Making an Investment in Its

question 85

Multiple Choice

A family business is considering making an investment in its manufacturing operation. Three decisions are under consideration: (1) a large investment; (2) a medium investment; and (3) a small investment. The business believes that there are three possible future outcomes for its product: (1) increasing demand; (2) stable demand; and (3) decreasing demand. The business believes that the probability for increasing, stable and decreasing product demand are 0.4, 0.5, and 0.1, respectively. The following payoff table describes the decision situation: The expected value for the medium investment decision is

• A) $600,000.
• B) $540,000.
• C) $330,000.
• D) $165,000.

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Definitions:

Steroids

A class of organic compounds with a characteristic molecular structure containing four rings of carbon atoms; found naturally in plants, animals, and fungi, and are used in medicine, often as hormones.

Micelle

A spherical aggregate of surfactant molecules dispersed in a liquid colloid, where the hydrophilic heads face outward and the hydrophobic tails are tucked inside.

Lecithin

A fatty substance found in plant and animal tissues, composed of phospholipids, and is used as an emulsifier in food and pharmaceutical products.

Diterpene

A type of terpene consisting of four isoprene units, making up 20 carbon atoms, often found in essential oils and used in medicines and perfumes.