1.7.2 Business Management

ACTIVITY 1.7.2 EXPANSION DECISION The owner of a service station is planning to expand the business. The two options are to build a forecourt to sell petrol or to construct a showroom to sell cars. The estimated building costs are: petrol forecourt - $100000; car showroom - $150000. The forecast economic consequences or pay-offs during the expected lives of these investments will depend on the level of demand in the economy, as shown in the table below. The probability of demand being low during the lifespan of these investments is 0.2 and the probability of high demand is 0.8. ACTIVITY 1.7.2 EXPANSION DECISION The owner of a service station is planning to expand the business. The two options are to build a forecourt to sell petrol or to construct a showroom to sell cars. The estimated building costs are: petrol forecourt - $100000; car showroom - $150000. The forecast economic consequences or pay-offs during the expected lives of these investments will depend on the level of demand in the economy, as shown in the table below. The probability of demand being low during the lifespan of these investments is 0.2 and the probability of high demand is 0.8