Micro-Pub, Inc., is considering the purchase of one of two microfilm cameras, R and S....
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Micro-Pub, Inc., is considering the purchase of one of two microfilm cameras, R and S. Both should provide benefits over a 10-year period, and each requires an initial investment of $2,000.
Management has constructed the following table of estimates of rates of return and probabilities for pessimistic, most likely, and optimistic results:
| Camera R Amount | Camera R Probability | Camera S Amount | Camera S Probability | |
| Initial investment | 2,000 | 1.00 | 2,000 | 1.0 |
| Annual rate of return: Pessimistic | 18% | 0.24 | 17% | 0.24 |
| Most likely | 29% | 0.51 | 26% | 0.57 |
| Optimistic | 31% | 0.25 | 34% | 0.19 |
a.Determine the range for the rate of return for each of the two cameras.
b.Determine the value of the expected return for each camera.
c.Which camera purchase is riskier? Why?
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