C and S Metal company produces stainless steel pots and pans. C and S can pursue either of two distribution plans for the coming year. The firm can either produce pots and pans for sale under a discount store label or manufacture a higher quality line for speciality stores and expensive mail order catalogues. High initial set-up costs along with C and S's limited capacity make it impossible for the firm to produce both lines. Profits under each plan depend upon the state of the economy. One of the three conditions will prevail:

Growth (probability = 0.3)

Normal (probability = 0.5)

Recession (probability = 0.2)

The outcome under each plan for each state of the economy is given in the table below. Figures in the table are profits measured in dollars. The probabilities for each economic condition represent crude estimates.

Economic condition	Discount line	Speciality line
Growth Normal Recession	250,000 220,000 140,000	400,000 230,000 20,000

(a) Calculate the expected value for each alternative.

(b) Which alternative is more risky?

(c) Taking into account the importance of risk, which alternative should an investor choose?

Posted Date: 2/25/2013 3:12:48 AM | Location : United States

Ask an Expert

Related Discussions:- Calculate the expected value, Assignment Help, Ask Question on Calculate the expected value, Get Answer, Expert's Help, Calculate the expected value Discussions

Write discussion on Calculate the expected value
Your posts are moderated

Write your message here..

Related Questions

Explain participatory management style, Leslie Igles is being sent to Irela... Leslie Igles is being sent to Ireland as the new manager of a local subsidiary of a U.S. firm. She has a participatory management style and is known for her ability to relate to th

Describe leadership training and development, Training and Development -Sug... Training and Development -Suggestions on how to write 1. Internet appeal how would you go about do that for fundraising 2 Print Advertisement 3. Special Events

Explain what implications does that fact have for managers, The resource-ba... The resource-based model identifies four criteria that firms can use to evaluate whether particular resources and capabilities are core competencies and can, therefore, provide a b

Calculate the two missing amounts, A company is considering whether to repl... A company is considering whether to replace a machine. The old machine costs $90,000 and is being depreciated at 10% per annum using the straight line method. It is written down va

Compute annual holding cost plus the annual ordering cost, The current orde... The current order quantity for Paul's Pasta Pinwheels is 200 boxes. The order cost is $4 per order, the holding cost is $0.40 per box per year, and the annual demand is 500 boxes p

Explain the factors determining the sequencing of jobs, Question : (a) ... Question : (a) Show how operations management can contribute to the success of an organization. (b) Explain the factors determining the sequencing of jobs. ( c) A machin

Explain don''t all firms use similar approaches, Given the success enjoyed ... Given the success enjoyed by Southwest, Whole Foods, and Google, why don't all firms use similar approaches to managing their employees?

Calculate the expected value of perfect information, A small building contr... A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm's capacity. The contractor must now make a decision on capac

Explain how can you stress to a marketing manager, How can you stress to a ... How can you stress to a marketing manager that marketing need to occur online, no matter if the company is operating in a brick and mortor building

Why jobs needed to produce the shopping carts, A company that makes shoppin... A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labour content of the jobs needed to produce the shoppi