Question

A resort hotel has $20,000,000 to invest it its next location. There are three potential sites for the expansion. The cost to build the facility in any of the locations is $20,000,000. Which location should be selected?
A. Location A: Probability / Outcome .50 / 20% .30 / 9% .20 / -10%
B. Location B: Probability / Outcome .40/ 19% .32 / 7.5% .28 / -11%
C. Location C: Probability / Outcome .45 / 22% .50 / 6% .05 / -15%

Answer 1

Answer:

Location C should be selected.

Step-by-step explanation:

Consider the provided information,

We need to determine which location should be selected.

We need to select the location with highest outcome

Location A) Probability / Outcome .50 / 20% .30 / 9% .20 / -10%

Outcomes = $0.5 \times 20+0.3\times 9+0.2\times (-10)$

Outcomes = $10+2.7-2$

Outcomes = $10.7\%$

Location B) Probability / Outcome .40/ 19% .32 / 7.5% .28 / -11%

Outcomes = $0.4 \times 19+0.32\times 7.5+0.28\times (-11)$

Outcomes = $7.6+2.4-3.08$

Outcomes = $6.92\%$

Location C: Probability / Outcome .45 / 22% .50 / 6% .05 / -15%

Outcomes = $0.45 \times 22+0.50\times 6+0.05\times (-15)$

Outcomes = $9.9+3-0.75$

Outcomes = $12.15\%$

Hence, location C has highest outcomes among all the locations. So Location C should be selected.