Question
A mid-sized chain restaurant is considering growing their business and opening additional restaurants in new markets. One of the key factors in making this decision
A mid-sized chain restaurant is considering growing their business and opening additional restaurants in new markets. One of the key factors in making this decision will be the level of interest rates over the next few years. It is estimated that there is a 30% chance that interest rates will go down by 2 percentage points, a 60% chance that they will stay the same, and a 10% chance that they will go up by 2 percentage points. The expansion options that they are considering and possible payoffs are shown in the table below.
Which alternative is best, based on expected value?
| Rates down | Rates | Rates up | |
| 2 percent | unchanged | 2 percent | |
| Open 20 restaurants | $200,000 | $90,000.00 | $150,000 |
| Open 10 restaurants | $115,000 | $40,000.00 | $80,000.00 |
| Do nothing | -$70,000.00 | $0.00 | $5,000.00 |
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College Accounting Chapters 1-26
Authors: Douglas J. McQuaig, Patricia A. Bille
6th Edition
0395796997, 978-0395796993
