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The Schmidt Construction Company is considering options for future growth. They can invest in a construction project with different scopes. The CEO must determine whether
The Schmidt Construction Company is considering options for future growth. They can invest in a construction project with different scopes. The CEO must determine whether to invest in Project A. a large condominium project. or in Project B. a mid-sized condominium project. The demand for the new constniction product involves an uncenainty, which for planning purposes may be low demand. medium demand. or high demand. The probability estimates for the demands are {1.4. 0.35. and $.25 respectively. Let X indicate the annual prot in $1s. Here are the prot forecasts for the medium- and large- scale construction projects: You may use a calculator, but you must demonstrate all other calculations in order to earn full points on the questions below. and you must write down the meaning of the result you calculated in full sentences. a] Compute the expected value for the prot associated with the two projects. (5 points] in! b Explain which decision is preferred for the objective of maximizing the expected profit. (5 points) c} Compute the variance and standard deviation for the prot associated with the two projects. *" Use the tabular approach and show your calculations. (15 points] d] Explain which decision is preferred for the objective of minimi ng the risk or uncertainty. 1-- Fully justify your answer. [5 points)
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