Important information about Calculating the expected returns
A home products discount store is considering expanding its capacity to meet a growing demand for its products. The alternatives are to build a new store at a site nearby, expand and refurbish the old store, or do nothing. Economists have projected the regional economic outlook: a 50 percent probability that the economy will remain unchanged, a 20 percent probability of an economic upturn and a 30 percent probability of an economic downturn. The following estimates of annual returns have been prepared in millions:
Market Downturn Stable market Market Upturn
Build new store $(0.8) $0.5 $2.1
Expand old store (0.4) 0.8 1.4
Do nothing (0.1) 0.2 0.5
Calculate the net returns for each option and use the calculations to make a final recommendation.