Question

Although Ken Brown (discussed in previous problem) is the principal owner of Brown Oil, his brother Bob is credited with making the company a financial success. Bob is vice president of finance. Bob attributes his success to his pessimistic attitude about business and the oil industry. Given the information from previous problem, it is likely that Bob will arrive at a different decision. What decision criterion should Bob use, and what alternative will he select

Answer 1

Answer:

1. Pessimistic criterion
2. Texan equipment

Explanation:

It is said that Bob has a pessimistic attitude when to comes to business and the oil industry. As a pessimist, Bob will look to minimize risk as much as he can because he is more worried about the downside of an investment than he is excited about the upside.

He will therefore pick the alternative that gives the lowest risk when things go bad which in this case will be Texan equipment because it offers the lowest losses if things should go bad at $18,000.