A local real estate investor in Orlando is considering three alternative investments: a motel, arestaurant, or a theater. Profits from the motel or restaurant will be affected by the availability ofgasoline and the number of tourists; profits from the theater will be relatively stable under anyconditions. The following payoff table shows the profit or loss that could result from eachinvestment. Based on the Maximax criteria, the investor should chooseInvestmentMotelRestaurantTheaterMotelRestaurantO TheaterO Any of the threeShortage$-8,0002,0006,000Gasoline AvailabilityStable Supply$15,0008,0006,000Surplus$20,0006,0005,000 For the Orlando real estate investment problem, assume the probabilities for the gasoline shortage,stable supply and surplus are .5, .3 and .2, then compute the expected opportunity loss of choosingmotel, it is (type number only, no decimals, no dollar sign)

Expected profit or loss If there is the chance of occurrence of three states with their…

A local real estate investor in Orlando is considering three alternative investments: a motel, a restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any conditions. The following payoff table shows the profit or loss that could result from each investment. Based on the Maximax criteria, the investor should choose Gasoline Availability Stable Supply Investment Motel Restaurant Shortage $-8,000 2.000 $15,000 8.000 Surplus $20,000 6.000

A local real estate investor in Orlando is considering three alternative investments: a motel, a restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any conditions. The following payoff table shows the profit or loss that could result from each investment. Based on the Maximax criteria, the investor should choose Gasoline Availability Stable Supply Investment Motel Restaurant Shortage $-8,000 2.000 $15,000 8.000 Surplus $20,000 6.000

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 9PA: Pitt Company is considering two alternative investments. The company requires a 12% return from its...

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Concept explainers

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.

Question

A local real estate investor in Orlando is considering three alternative investments: a motel, a
restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of
gasoline and the number of tourists; profits from the theater will be relatively stable under any
conditions. The following payoff table shows the profit or loss that could result from each
investment. Based on the Maximax criteria, the investor should choose
Investment
Motel
Restaurant
Theater
Motel
Restaurant
O Theater
O Any of the three
Shortage
$-8,000
2,000
6,000
Gasoline Availability
Stable Supply
$15,000
8,000
6,000
Surplus
$20,000
6,000
5,000

For the Orlando real estate investment problem, assume the probabilities for the gasoline shortage,
stable supply and surplus are .5, .3 and .2, then compute the expected opportunity loss of choosing
motel, it is (type number only, no decimals, no dollar sign)

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