Using Excel, calculate the expected value of each project
and identify the preferred project according to this
criterion.
Assume that the individual’s utility function for profit is
U(X) =X-0.05X2. Calculate the expected utility of each
project and identify the preferred project according to this
criterion.
Is this individual risk adverse, risk neutral, or risk
seeking? Why?
Froeb et al.’s Chapter 17:
a) Individual problems: 17–1 and 17–4.
Individual Problem 17-1: You’re the manager of global
opportunities for a US manufacture, who is considering
expanding sales into Europe. Your market research has
identified three potential market opportunities: England,
France, and Germany. If you enter the English market,
you have a 0.5 chance of a big success (selling 100,000
units at a per-unit profit of $8), a 0.3 chance of moderate
success (selling 60,000 units at a per-unit profit of $6), and
a 0, 2 chance of failure (selling nothing). If you enter the
German market, you have a 0.2 chance of huge success
(selling 150,000 units at a per-unit profit of $10), a 0.5
chance of moderate success (selling 70,000 units at a per-
unit profit of $6), and a 0.3 chance of failure (selling
nothing). If you can enter only one market, and the cost of
entering the market (regardless of which market you
select) is $250,000, should you enter one of the European