King, Inc., a successful Midwest firm, is considering opening a branch office on the West Coast. Under normal economic conditions, with a 45% probability of occurring, King can expect to earn a net income of $70,000 per year. In a mini-recession, at 25% probability, King will earn $20,000. In a severe recession, at a 20% probability, King will lose $15,000. There is also a slight probability (10%) that King will lose $300,000 if the expansion fails and the branch office must be closed. Should King open a branch office in California based on these assumptions?

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The Answer of King, Inc., a successful Midwest firm, is considering opening a branch office on the West Coast. Under normal economic conditions, with a 45% probability of occurring, King can expect to earn a net income of $70,000 per year. In a mini-recession, at 25% probability, King will earn $20,000. In a severe recession, at a 20% probability, King will lose $15,000. There is also a slight probability (10%) that King will lose $300,000 if the expansion fails and the branch office must be closed. Should King open a branch office in California based on these assumptions?

King, Inc, a Successful Midwest Firm, Is Considering Opening a Branch