1. If a restaurant owner considers adding a new main course and deleting another for profitability purposes, what decision rule should be applied? What type of decision is this?
Time Value of Money.
Sara Kardashboard has won second prize in the BIG lottery. Friends she never knew about have offered her several “opportunities of a lifetime.” She would like a 14 percent annual return. The lottery prize was a check for $300,000. Among the “opportunities” are:
(1) $50,000 per year for 10 years.
(2) $400,000 to be paid on this same date in the next U.S. presidential election year.
(3) $20,000 per year for the rest of her life (about 50 years).
(4) A penniless friend tells Keren that he wrote her a check for $1,000,000 and put it “in the mail” several years ago, and he asks whether she has received it yet.
(5) $500,000 to be paid on this same date five years from now.
After judging uncertainty, which should she select? Explain