1. Scenario: You are considering purchasing a new computer for the back-office of your pizza restaurant. It costs $1,000. Under the scenarios shown below, the expected value is $311.57. However, you think there's a possibility that the new computer could produce 3x the benefits shown in the best-case scenario if staff use it to research better recipes and cooking methods. The computer shop next door offers to sell you another computer in a year at a price not to exceed $1,200.

a). Calculate in Excel the maximum fee you'd be willing to pay for the option to purchase the computer in a year.

2. Scenario: You are considering purchasing a new computer for the back-office of your pizza restaurant. It costs $1,000. Under the scenarios shown below, the expected value is $311.57. However, you're unwilling to tolerate the risk of the worst-case scenario in which employees waste time with it on social media, hurting productivity, resulting in a $67.60 loss.

b). Calculate in Excel the maximum fee you'd be willing to pay for the right to abandon the PC, selling it to a computer shop for $500 in one year. Hint: calculate the expected NPV of the computer with this option, net of its value without ($311.57).

PROJECT A Scenarios Outlay Prob C1 C2 C3 NPV Prob*NPV Best 30% 700 750 800 962 288.70 Base -1,000 50% 450 450 450 181 90.47 Worst 20% 300 250 200 (338) Exp. Value (67.60) 311.57 PROJECT A Scenarios Outlay Prob C1 C2 C3 NPV Prob*NPV Best 30% 700 750 800 962 288.70 Base -1,000 50% 450 450 450 181 90.47 Worst 20% 300 250 200 (338) Exp. Value (67.60) 311.57