A company has a customer who is shutting down a production line, and management has the responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $100,000. Management dealings on the secondhand market lead them to believe that if they commit to a price of $200,000, there is a 0.4 chance they will be able to sell the machine. If management commit to a price of $300,000, there is a 0.25 chance the company will be able to sell the machine. If management commit to a price of $400,000, there is a 0.1 chance the company will be able to sell the machine. These probabilities are summarized in the following table.

For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to the company in the event that management ia not be able to sell the machine.)

Posted Price Probability of sale Expected value

($) ($)

$400,000 0.1 $?

$300,000 0.25 $?

$200,000 0.4 $?

Assume management must commit to one posted price.

In order to maximize the expected profit of the potential sale, which posted price should management commit to in order to maximize the expected value of the potential sale of the machine?

A. $200,000

B. $300,000

C. $400,000