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
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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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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
Transcribed Image Text: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)
Transcribed Image Text: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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ISBN:
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OpenStax
Publisher:
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