12 May WHICH PROJECT CHOICE WILL A MANAGER MAKE USING THE COEFFICIENT OF VARIATION RULE?
The following payoff matrix shows the profit outcomes for three projects, A, B, and C, for each oftwo possible product prices. There is a 60% probability the price will be $10 and a 40%probability the price will be $20.ProfitProject P = $10 P = $20 A 20 80 B 40 60 C 26 140 a. What choice will a manager make using the Expected Value Rule? b. Which project choice will a manager make using the Coefficient of Variation Rule? 2. A firm is considering the decision of investing in new plants. The following is the profit payoffmatrix under three conditions: it does not expand, it builds two new plants, or it builds one newplant. Three possible states of nature can exist–no change in the economy, the economycontracts and the economy grows. The firm has no idea of the probability of each state.State of Economyexpands contracts unchanged no new plants $20 million $ 3 million $4 million 1 new plant $30 million $ 6 million $6 million 2 new plants $40 million $12 million $8 million Which option would the firm choose under each of the following rules?a.
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