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The president of a large oil company must decide how to invest the company's P10 million of excess profits. He could invest the entire sum in solar energy research, or he could use the money to research better ways of processing coal so that it will burn more cleanly. Another possible option is to put half of this R&D money into solar research and half into coal research. Not investing is not an option. The president estimates 1,000 percent return on investment if the solar research is successful and a 500 percent return on investment if the coal research is successful.

a.) Construct a payoff table for the president's R&D investment problem.

b.) Based on the maximin criterion, what decision should the president make?

c.) Based on the maximax criterion, what decision should the president make?

d.) Based on the minimax regret criterion, what decision should the president make?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91731031

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