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Outdoor Sports Company, with its main office in Iowa, is considering opening a branch office in Los Angeles. Under normal economic conditions, which have a 45% chance of occurring, Outdoor can expect to earn a net income in that branch office of $50,000. If there is a mini-recession, which has a 25% chance of occurring, Outdoor will earn $20,000 in that branch office. In a severe recession, which has a 20% chance of occurring, Outdoor will lose $10,000 in the branch office. There is also a slight chance (10%) that the branch office will be a failure and Outdoor will lose $300,000. Should Outdoor open the branch office?

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This problem is related to expected value. There are four scenarios for Outdoor. The scenarios, related payoffs and the probability of each scenario are given as ...

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