Blackbird Brownines and Confections is looking to hedge its bets in the face of
ID: 406068 • Letter: B
Question
Blackbird Brownines and Confections is looking to hedge its bets in the face of economic uncertainty and ensure that it can continue to grow. The company hires a business analyst to identifu four different business incestents they could make with 25% of their current cash to help them continue to grow through the recession. What is the expected profit or loss for each choice, and what is the opimal investment?
Investment Economy gains(0.1) Steady(0.3) Declines(0.6)
Revamp distribution $12,860 $4,200 $3,450
Revamp kitchens $12,040 $6,960 $1,200
Online Store $10,950 $8,660 $450
Mobile sales truck $15,600 $13,480 -$9,850
Explanation / Answer
Answer:
Expected Profit of Revamp distribution = 0.1 x $12,860 + 0.3 x $4,200 + 0.6 x $3,450 = $1286 + $1260 + $2070
= $4616
Expected Profit of Revamp distribution = 0.1 x $12,040 + 0.3 x $6960 + 0.6 x $1200 = $1204 + $2088 + $720
= $4012
Expected Profit of Revamp distribution = 0.1 x $10950 + 0.3 x $8660 + 0.6 x $450 = $1095 + $2598 + $270
= $3963
Expected Profit of Revamp distribution = 0.1 x $15600 + 0.3 x $13480 + 0.6 x -$9850 = $1560 + $4044 - $5910
= -$306
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