Adrianna is an up-and-coming audit partner who specializes in health care audits at Sterling Cooper LLP, a rapidly growing mid-size public accounting firm. Adrianna’s compensation is based partially on her client work and partially on her ability to bring new audit clients to the firm. In fact, the senior partners in her firm admitted Adrianna as a partner largely because she is a “rainmaker” for the firm. The firm has even set ambitious sales goals for the coming year that she is expected to meet.

Although the firm has limited resources and can only staff one new engagement in Adrianna’s office for the year, Adrianna has a good chance of winning each of three engagements that are currently out for bid. Each engagement comes with different revenue potential and risks for Sterling Cooper.

Company 1 is a privately owned healthcare operator that is considered a low-risk to the firm and will result in a projected $300,000 profit for the firm. Company 2 is a small publicly traded company that operates in the health care and pharmaceutical sectors, is considered a medium-risk to the firm, and is projected to result in a $700,000 profit for the firm. Finally, Company 3 is an international media conglomerate, is assessed as a high-risk client to the firm, and is projected at a $1,400,000 profit for the firm.

Required:

a. Set up a table with side-by side columns listing the positives and negatives of each client.

b. Is there any additional information you would like to have in selecting the company that Sterling and Cooper should choose as a new client? If so, list.

c. Using the information you have, and different possibilities for the information you feeling you are lacking, explain under which conditions you would or would not select each company as a client.

d. Explain the tradeoff between profitability and risk that you considered in your answer to (c).