you are considering opening a designer shoe store at The Summit. Available space

Question

you are considering opening a designer shoe store at The Summit. Available space allows you the possibility to build a large store, a smaller store, or no store at all. Here is the table:

                                                                       States of Nature

Alternatives             Good Economy         Fair Economy         Poor Economy

Large Shop                  $90,000                  $40,000                   -$40,000

Small Shop                  $65,000                  $28,000                   -$25,000

Do Nothing                       0                              0                                0

Probabilities                    40%                         30%                          30%

    What is the EMV decision?       

Explanation / Answer

EMV of Large shop = (90000*40%) + (40000*30%) + (-40000*30%) = $36,000

EMV of Small shop = (65000*40%) + (28000*30%) + (-25000*30%) = $26,900

Total EMV = 36000 + 26900 = $62,900

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