a retailer is considering building a large store. if the local economy experiences expansion, the firm expects the store to earn a $2,000,000 profit next year. if the local economy experiences a contraction, the firm expects the store to lose $400,000 next year. analysts estimate a 20% chance for the local economy to experience an expansion next year (hence an 80% chance for contraction). what is the expected monetary value (emv) of building the large store? group of answer choices $80,000 $720,000 $1,520,000 $1,600,000 $2,000,000

Respuesta :

The expected monetary value of building the large store is $80,000. Expected monetary value (EMV) is a measure of the expected value of an investment or decision in terms of money.

The EMV represents the average amount that an investment or decision is expected to yield over time, taking into account the likelihood of different outcomes. To find the expected monetary value (EMV) of building the large store, we need to multiply the probability of each outcome by the profit or loss associated with that outcome and then add those values together.

In this case, there is a 20% chance of experiencing an expansion, which would result in a profit of $2,000,000. The EMV for this outcome is:

20% * $2,000,000 = $400,000.

There is an 80% chance of experiencing a contraction, which would result in a loss of $400,000. The EMV for this outcome is:

80% * -$400,000 = -$320,000.

Adding these two values together gives us an EMV of $400,000 + (-$320,000) = $80,000. Therefore, the expected monetary value of building the large store is $80,000.

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