Problems -3-17 Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a fac- tor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table: FAVORABLE UNFAVORABLE MARKET MARKET EQUIPMENT ($) ($) Sub 100 300,000 -200,000 Oiler J 250,000 -100,000 Texan 75,000 -18,000 For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfa- vorable, Ken will suffer a loss of $200.000. But Ken has always been a very optimistic decision maker. (a) What type of decision is Ken facing? (b) What decision criterion should he use? (c) What altermative is best?
Problems -3-17 Kenneth Brown is the principal owner of Brown Oil, Inc. After quitting his university teaching job, Ken has been able to increase his annual salary by a fac- tor of over 100. At the present time, Ken is forced to consider purchasing some more equipment for Brown Oil because of competition. His alternatives are shown in the following table: FAVORABLE UNFAVORABLE MARKET MARKET EQUIPMENT ($) ($) Sub 100 300,000 -200,000 Oiler J 250,000 -100,000 Texan 75,000 -18,000 For example, if Ken purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfa- vorable, Ken will suffer a loss of $200.000. But Ken has always been a very optimistic decision maker. (a) What type of decision is Ken facing? (b) What decision criterion should he use? (c) What altermative is best?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Problems
2:3-17 Kenneth Brown is the principal owner of Brown Oil,
Inc. After quitting his university teaching job, Ken
has been able to increase his annual salary by a fac-
tor of over 100. At the present time, Ken is forced
to consider purchasing some more equipment for
Brown Oil because of competition. His alternatives
are shown in the following table:
FAVORABLE UNFAVORABLE
MARKET
MARKET
EQUIPMENT
($)
($)
Sub 100
300,000
-200,000
Oiler J
250,000
-100,000
Техan
75,000
-18,000
For example, if Ken purchases a Sub 100 and if
there is a favorable market, he will realize a profit of
$300,000. On the other hand, if the market is unfa-
vorable, Ken will suffer a loss of $200.000. But Ken
has always been a very optimistic decision maker.
(a) What type of decision is Ken facing?
(b) What decision criterion should he use?
(c) What altermative is best?
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