John Is Trying to Decide Whether to Expand His Business

question 95

Multiple Choice

John is trying to decide whether to expand his business or not.If he continues his business as it is,with no expansion,there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000.If he does expand,there is a 30 percent chance he will earn $100,000,a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000.It will cost him $150,000 to expand.The difference in expected earnings if John chooses to expand versus not expand is:

• A) $320,000.
• B) $200,000.
• C) $150,000.
• D) $120,000.

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