The owner of a small printing company is considering the pur

The owner of a small printing company is considering the purchase of additional printing equipment to expand her business. If the owner expands the business and sales are high, projected profits (minus the cost of the equipment) should be $90,000; if sales are low, projected profits should be $40,000. If the equipment is not purchased, projected profits should be $70,000 if sales are high and $50,000 if sales are low.

Solution

1. The other option that must be considered before making the decision is: what is the probability of the demand being high, and what is the probability of the demand being low.

2. If the owner is optimisitc, then he should expand by purchasing the equipment.

3. Yes, the owner\'s optimism and pessimism about sales is the only factor that impact company\'s profit. (I have assumed that owner\'s optimisim / pessimism is a measure of the probability of the demand being high / low)

4. If the equipment has a useful life of five years, then the owner must consider the probability of the demand being high, or being low, every year, for the next five years.