Question: A fast food restaurant is considering a capacity expansion program. The major factor influencing the success is the future level of interest rate in 6 months. Calculate the expected values for three decisions (strategies). Which strategy would you choose?
The strategies they are considering and expected payoffs are:
Rate goes-up Rate stays same Rate goes-down
(50%) (40%) (10%)
Build 50 new places 150,000 $50,000 $150,000
Build 25 new places 110,000 $25,000 $80,000
Do nothing 70,000 0 $5,000