Solar Designs is considering an investment in an expanded
product line. Two possible types of expansion are being considered. After investigating
the possible outcomes, the company made the estimates shown in the
following table:
a. Determine the range of the rates of return for each of the two projects.



b. Which project is less risky? Why?


c. If you were making the investment decision, which one would you choose?
Why? What does this imply about your feelings toward risk?



d. Assume that expansion B’s most likely outcome is 21% per year and that all
other facts remain the same. Does this change your answer to part c? Why?

Expansion A Expansion B
Initial investment $12,000 $12,000
Annual rate of return
Pessimistic 16% 10%
Most likely 20% 20%
Optimistic 24% 30%