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6. A local bank is faced with the problem of extending $100,000 credit to a new customer, a local distillery. The bank classifies typical companies

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6. A local bank is faced with the problem of extending $100,000 credit to a new customer, a local distillery. The bank classifies typical companies into the following categories: poor risk, average risk, and good risk. Their experience indicates that 20 percent of similar companies are poor risks, 50 percent are average risks and 30 percent are good risks. If credit is extended, the expected profit for poor risks is -$15,000, for average risks $10,000, and for good risks $20,000. If the bank does not extend credit, the distillery will turn to another bank. a. What action should the bank take? What is the value of perfect information? b. 6. A local bank is faced with the problem of extending $100,000 credit to a new customer, a local distillery. The bank classifies typical companies into the following categories: poor risk, average risk, and good risk. Their experience indicates that 20 percent of similar companies are poor risks, 50 percent are average risks and 30 percent are good risks. If credit is extended, the expected profit for poor risks is -$15,000, for average risks $10,000, and for good risks $20,000. If the bank does not extend credit, the distillery will turn to another bank. a. What action should the bank take? What is the value of perfect information? b

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