Problem: X comapny is considering the pruchase of one of two microfilm cameras, R and S. Both should provide benefits over a 10-year period, and each requires an initial investment of $4,000. Management has constructed the table of estimates as follows.
Camera R Camera S
amount probability amount probability
initial investment $4,000 1.00 $4,000 1.00
Annual rate of return
Pessimistic 20% 0.25 15% 0.20
Most likely 25% 0.50 25% 0.55
Optimistic 30% 0.25 35% 0.25
a. Determine the range for the rate of return for each of the two cameras
b. Determine the expected value of return for each camera
c. Purchase of which camera is riskier? why?