Different alternatives as the probability of good changes

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Ricardo and sons are planning to invest in advertising to sell three of their products. There are three different outcomes: A. sells the most, B. sells the most, or C. sells the most. Two possible states exist, good and bad. The table below indicates the profits and losses of investing in the advertising of the three products under given states - good and bad. Construct an Excel spreadsheet to answer the following:

Product Good (0.6) Bad (0.4)

A $5.0 million $0 million

B $2.5 million $2.5 million

C $7.5 million -$2.5 million

a. Determine which product they should invest in this year based on maximizing expected value.

b. Create a sensitivity graph comparing the different alternatives as the probability of good changes.

Reference no: EM132642143

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