Question: Large or Small problem - build a large or small restaurant. Which has the highest expected NPV (P = Probability)? $26,000 High P(High Demand) =

Large or Small problem - build a large or small restaurant. Which has the highest expected NPV (P = Probability)? $26,000 High P(High Demand) = 0.60 Large P(Low Demand) = 0.40 Low $15,000 O a $24,000 High Small Low $19,000 Wait Option Problem - Build a restaurant now or wait 1 year. Which has the higher expected NPV? What is the value of the Wait option? $130,000 P(High Demand) = 0.60 High P(Low Demand) = 0.40 Note: P = probability Build Now Low $100,000 $130,000 P(High Demand) = 0.55 High P(Low Demand) = 0.45 Wait a year Low $100,000

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