Suppose that Hudson Meats, Inc. is engaged in the business activity of supplying hamburger patties to major U.S. fast food chains. A new business opportunity is presented to the firm. They have the opportunity to supply Burger Tsar with hamburger patties for all their franchises in Russia. The nature of the meat processing business is inherently risky, however. Even with careful precautions, an outbreak of e coli bacteria in this new venture can cause major losses to the firm by damaging its reputation. The new venture will necessitate an expenditure of $50 million. Then, the expected payoffs are as follows:

a. Compute the expected return to this venture.
b. Compute the range of the outcomes as a measure of risk associated with this venture.
c. Now suppose that a tax of 35% is imposed (with full loss offset). Re-compute the expected return to the venture and the range of outcomes. Explain what effects the tax is likely to have on Hudson Meat€™s decision to enter the Russian market.

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States Low retum High retum Do not take risk Acts Take risk $50 million +$200 million (probability 0.3)