Risk Analysis

The CEO is considering purchasing a farm in Kansas because the land there is perfect for growing herbs.  However, with recent floods and tornadoes he is very weary.  If the weather is favorable with no natural disasters then McCormick and stand to make $400M if they bought a large plot of land, $150M if they bought a small plot of land and $0 if they did nothing.  But if the weather is unfavorable, they could stand to lose $25M on a large plot, $2M on a small plot and $0 on no plot..  The weather channel reports that there is a 60% chance that there will be a flood or tornado in that area within the next 2 years.   He asks his trusty analyst to do a risk analysis.  After careful analysis even though they is a lot of risk involved the CEO decided to buy the large plot of land.

Alternatives	States of Nature		EMV
	Favorable Weather	Unfavorable Weather
Large Plot	$4ooM	-$25M	.40($400M) +.60(-$25M) = $145M
Small Plot	$150M	-$2M	.40($150M) + .60(-2M) = $58.8
No Plot	$0	$0	$0
Probability	.40	.60