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

Location C should be selected.

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 * 20+0.3* 9+0.2* (-10)`

Outcomes =
`10+2.7-2`

Outcomes =
`10.7\%`

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

Outcomes =
`0.4 * 19+0.32* 7.5+0.28* (-11)`

Outcomes =
`7.6+2.4-3.08`

Outcomes =
`6.92\%`

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

Outcomes =
`0.45 * 22+0.50* 6+0.05* (-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.