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

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. The expected value for the large investment decision is

A) $700,000.
B) $540,000.
C) $330,000.
D) $165,000.