You are considering opening a designer shoe store at The Sum

You are considering opening a designer shoe store at The Summit. Available space allows you the possibility to build a large store, a smaller store, or no store at all. Here is the table: States of Nature Alternatives Good Economy Fair Economy Poor Economy Large Shop $90,000 $40,000 -$40,000 Small Shop $65,000 $28,000 -$25,000 Do Nothing 0 0 0 Probabilities 40% 30% 30% What is the EOL amount?

Solution

EMV of Large shop = (90000*40%) + (40000*30%) + (-40000*30%) = $36,000

EMV of Small shop = (65000*40%) + (28000*30%) + (-25000*30%) = $26,900

Total EMV = 36000 + 26900 = $62,900