Fairco, a Family Business, Is Considering Making an Investment in Its

question 12

Multiple Choice

Fairco, 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. If the expected value criterion is used, then the best decision would be to

• A) make the large investment.
• B) make the medium investment.
• C) make the small investment.
• D) choose the stable demand.

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