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QUESTION: A firm has three investment alternatives, as indicated in the following payoff table (payoffs in thousands of dollars): To understand this...

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QUESTION: A firm has three investment alternatives, as indicated in the following payoff table (payoffs in  thousands of dollars): To understand this table, let's look at the first investment possibility, a (designated decision 1, or  d1). First of all, there are three possible scenarios: s1, economic conditions improve; s2,  conditions remain stable; s3, the economy nosedives. The respective probabilities for each  scenario are 0.4, 0.3, and 0.3. Under d1, if the economy improves, the payoff will be 100K; if  stable, 25K, if the economy is poor, the payoff is 0. The second investment strategy is somewhat less sensitive to economic conditions, and the third  is not influenced by the economy at all, guaranteeing a 50K payoff. Using the expected value approach, which decision is preferred? 
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This question was asked on Jan 27, 2013.

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