Your firm is considering three investment projects, A, B and C. Given the budget constraints, you must chooseone and justify!

Project A will provide a net return of either $32, $42, or $52, respectively, depending on whether there will be a recession, normal conditions, or a boom. The figures for Project B are $23, $33, or $73, respectively. Project C has returns of $32, $43, $64 respectively.

Forecasts indicate that, given the current trends in appropriate economic indicators in the following year the chances (f_i) are 25% that a recession will occur, 40% that the economic conditions will stay as they are, and 35% that the economy will enjoy a boom.

1. Construct a payoff table. (10 points)

2. If there were an uncertain decision situation rather than one under risk, what would your choice be under the condition of perfect optimism (MXMX), perfect pessimism (MXMN), optimism at 0.70 (REALSM), Equal Likelihood, and minimization of Regrets? (50 points)

3. What is the expected value ( Xbar) and (s Sigma) of each alternative in DMUR? Which alternative must you choose from each point of view? (20 points)

4. Which project should be chosen on the basis of the calculation of Coefficient of Variation? (10 points)

5. Calculate the probability of making at least $55 net return. Which investment is the best? (10 points)