Napoleon's Uncle Rico believes that the scenarios are not necessarily equally likely, and suggests that the likelihood of occurrence of Scenario 2 is 0.4 and the likelihood of occurrence of Scenarios 1 and 3 are both 0.3

Question

What two criteria are most appropriate and what is the resulting decision?

Napoleon is contemplating four institutions of higher learning as options for a Masters in Business Administration. Each university has strong and weak points and the demand for MBA graduates is uncertain. The availability of jobs, student loans, and financial support will have a significant impact on Napoleon's ultimate decision. Vanderbilt and Seattle University have comparatively high tuition, which would necessitate Napoleon take out student loans resulting in possibly substantial student loan debt. In a tight market, degrees with that cachet might spell the difference between a hefty paycheck and a piddling unemployment check. Northeastern State University and Texas Tech University hold the advantage of comparatively low tuition but a more regional appeal in a tight job market. Napoleon gathers his advisory council of Kip and Pedro to assist with the decision. Together they forecast three possible scenarios for the job market and institutional success and predict annual cash flows associated with an MBA from each institution. All cash flows in the table are in thousands of dollars.

School Scenario 1 Scenario 2 Scenario 3
Vanderbilt 95 20 -10
Texas Tech 55 60 60
Seattle 90 10 80
Northeastern State 65 50 60

Answer 1

Answer: The two criteria are expected monetary value and expected opportunity loss. The EMV is highest for Texas Tech University at $58,500 and the EOL is the lowest for Texas Tech University at $18,000.