CFL Corporation is a civil engineering company that makes traffic lights. The company must decide whether to (a) spend money to expand their existing business, or (b) to invest in a new product line of smart traffic lights, or (c) to do nothing. If the company expands its existing business, there is a 40% chance they will increase their market share, resulting in a profit increase of $2,500,000; and a 60% chance they will face stronger competition from their competitors, resulting in a profit decrease of $800,000. If the company invests in a new product line, there is a 50% chance of success, resulting in a profit increase of $1,800,000; and a 50% chance of failure, resulting in profit decrease of $600,000. 4 If the company does nothing, there is a 40% chance that its market share will increase anyway, resulting in a profit increase of $1,000,000; and a 60% chance of new competitive threats, resulting in a profit decrease of $400,000. Which decision will lead to the highest Expected Monetary Value (EMV)? No answer text provided. Invest in a new product line O Do nothing O Expand the existing business
CFL Corporation is a civil engineering company that makes traffic lights. The company must decide whether to (a) spend money to expand their existing business, or (b) to invest in a new product line of smart traffic lights, or (c) to do nothing. If the company expands its existing business, there is a 40% chance they will increase their market share, resulting in a profit increase of $2,500,000; and a 60% chance they will face stronger competition from their competitors, resulting in a profit decrease of $800,000. If the company invests in a new product line, there is a 50% chance of success, resulting in a profit increase of $1,800,000; and a 50% chance of failure, resulting in profit decrease of $600,000. 4 If the company does nothing, there is a 40% chance that its market share will increase anyway, resulting in a profit increase of $1,000,000; and a 60% chance of new competitive threats, resulting in a profit decrease of $400,000. Which decision will lead to the highest Expected Monetary Value (EMV)? No answer text provided. Invest in a new product line O Do nothing O Expand the existing business
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:CFL Corporation is a civil engineering company that makes traffic lights. The company must
decide whether to (a) spend money to expand their existing business, or (b) to invest in a new
product line of smart traffic lights, or (c) to do nothing.
If the company expands its existing business, there is a 40% chance they will increase their
market share, resulting in a profit increase of $2,500,000; and a 60% chance they will face
stronger competition from their competitors, resulting in a profit decrease of $800,000.
If the company invests in a new product line, there is a 50% chance of success, resulting in a
profit increase of $1,800,000; and a 50% chance of failure, resulting in profit decrease of
$600,000.
4
If the company does nothing, there is a 40% chance that its market share will increase anyway,
resulting in a profit increase of $1,000,000; and a 60% chance of new competitive threats,
resulting in a profit decrease of $400,000.
Which decision will lead to the highest Expected Monetary Value (EMV)?
No answer text provided.
O Invest in a new product line
O Do nothing
Expand the existing business
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