Al and Beck have known each other since high school. Two years ago they entered the same university and today they are taking undergraduate courses in the business school. Both hope to graduate with degrees in finance. In an attempt to make extra money and to use some of the knowledge gained from their business courses, Al and Beck have decided to look into the possibility of starting a small company that would provide word processing services to students who needed term papers or other reports prepared in a professional manner. Using a systems approach. Al and Beck have identified three strategies. Strategy 1 is to invest in a fairly expensive microcomputer system with a high-quality laser printer. Strategy 2 is to purchase a less expensive system. Their final strategy, strategy 3, is to do nothing. The following table summarizes the payoffs under two distinct market conditions.

 

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Alternative Strategy 1 Favorable Market ($) Strategy 3. 10 000 Strategy 2 8.000 0 Favorable Market ($) -8.000 -4. 000 0 Before embarking on their new endeav- our, they decided to perform a sensitiv- ity analysis to avoid possible misfortunes. This led them to the following system of equations: EMV₁ = 18000p - 8000 EMV₂ = 12000p - 4000 EMV₁=0 (a) On a single graph, sketch all lines. (b) Determine when it is more reasonable to choose the first strategy. Alternative Strategy 1 Favorable Market ($) Strategy 3. 10 000 Strategy 2 8.000 0 Favorable Market ($) -8.000 -4. 000 0 Before embarking on their new endeav- our, they decided to perform a sensitiv- ity analysis to avoid possible misfortunes. This led them to the following system of equations: EMV₁ = 18000p - 8000 EMV₂ = 12000p - 4000 EMV₁=0 (a) On a single graph, sketch all lines. (b) Determine when it is more reasonable to choose the first strategy.

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A B B by looking at the graph we can see that strategy 2 is more profitable than s... View the full answer