Risk and return to investment: a buyer for a department store must decide whih designs the stores will carry before he knows what the demand will be in the coming season. The designs, A and B, have the following probability of succeeding and their associate costs with failure. The cost of the initial investment is $30,000. Design A: probability of success (0.80), with a pay-off from success ($90,000), and cost from failure ($50,000). Design B: Probability of success (0.70), pay-off from success ($70,000), and cost from failure ($10,000)   Which design should the department store choose based on the expected value of the net benefit? state the expected net return to the project and show work.

Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter12: Integer Linear Optimization_models
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Problem 3P: Spencer Enterprises is attempting to choose among a series of new investment alternatives. The...
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Risk and return to investment:

a buyer for a department store must decide whih designs the stores will carry before he knows what the demand will be in the coming season. The designs, A and B, have the following probability of succeeding and their associate costs with failure. The cost of the initial investment is $30,000.

Design A: probability of success (0.80), with a pay-off from success ($90,000), and cost from failure ($50,000).

Design B: Probability of success (0.70), pay-off from success ($70,000), and cost from failure ($10,000)

 

Which design should the department store choose based on the expected value of the net benefit? state the expected net return to the project and show work.

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