The Norwegian firm Fjell ASA is considering expanding operations overseas, and is evaluating the Netherlands and South Africa as possible sites. The Netherlands is viewed as relatively safe, whereas operating in South Africa is seen as riskier. In both cases, the company would close down operations after one year.

After undertaking a complete financial analysis, Fjell has come up with the following cash flows of the alternative expansion plans under three scenarios – pessimistic, most likely and optimistic:

Pessimistic (NKr) Most likely (NKr) Optimistic (NKr)

Netherlands 750,000 1,000,000 1,250,000 South Africa 0 1,500,000 2,000,000 If we ignore the pessimistic scenario, perhaps South Africa is the best alternative. When we take the pessimistic scenario into account, the choice is unclear. South Africa appears to be riskier, but it also offers a higher expected level of cash flow.