The Dollar Department Store Chain Has the Opportunity of Acquiring

question 46

Essay

The Dollar Department Store chain has the opportunity of acquiring either 3,5,or 10 leases from the bankrupt Granite Variety Store chain.Dollar estimates the profit potential of the leases depends on the state of the economy over the next five years.There are four possible states of the economy as modeled by Dollar Department Stores and its president estimates P(s₁)= .4,P(s₂)= .3,P(s₃)= .1,and P(s₄)= .2.The utility has also been estimated.Given the payoffs (in $1,000,000's)and utility values below,which decision should Dollar make?
Payoff Table State Of The Economy
Over The Next 5 Years
Decision s₁ s₂ s₃ s₄
d₁ -- buy 10 leases 10 5 0 -20
d₂ -- buy 5 leases 5 0 -1 -10
d₃ -- buy 3 leases 2 1 0 - 1
d₄ -- do not buy 0 0 0 0
Utility Table
Payoff (in $1,000,000's)+10 +5 +2 0 -1 -10 -20
Utility +10 +5 +2 0 -1 -20 -50

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Definitions:

Expense Account

An account where costs incurred by a business, like rent, utilities, and salaries, are recorded.

Intangible Asset

An asset that lacks physical substance but offers value to a business, such as trademarks, patents, and copyrights.

Mining Rights

Legal permissions granted to companies or individuals to extract minerals or other valuable materials from the earth.

Depletion Expense

An accounting concept used to allocate the cost associated with natural resource extraction over the period of their removal or sale.