A Family Business Is Considering Making an Investment in Its

question 22

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 of perfect information for the family business is

• A)$602,500
• B)$540,000
• C)$62,500
• D)$25,000

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Definitions:

Good Faith

The honest intention to act without taking an unfair advantage over another party, often referenced in contracts and negotiations to ensure fair dealings.

Commercial Standards

Established practices or criteria within a business sector that are widely accepted and used to maintain quality and consistency.

Negotiable Warehouse Receipt

A document issued by warehouse keepers that promises delivery of goods stored in the warehouse to the holder of the receipt, which can be transferred by endorsement.

Bailee

The person to whom a bailment is made.