1 answer

Racquet Centers, Inc. (RCI) is a small investment company. The company is considering building a new...

Question:

Racquet Centers, Inc. (RCI) is a small investment company. The company is considering building a new racquet center. If the demand for the center is high (i.e., there is a favorable market for the racquet center), RCI could realize a net profit of $100,000. If the market is not favorable, RCI could lose $40,000. Of course, they don’t have to proceed at all; in which case, there is no cost. In the absence of any market data, the best RCI can guess is that there is a 50–50 chance the center will be successful. Construct a decision tree to help analyze this problem. What should RCI do? Please show your decision tree, Excel computations, and fully explain your answer.


Answers

Goluffon 0-ST Prob $40, 000 ot tav market 뉴 Pretr,tof bable market -loss expeeted 20- $-40000 O chonee evenHente, opLtmal decrsten e be o bafldl o 2 even,下27 would need to evaluale the i decision. Corter? com pany

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