Scenario 5.8: Risk-neutral Icarus Airlines must commit now t…
Scenario 5.8: Risk-neutral Icarus Airlines must commit now to leasing 1, 2, or 3 new airplanes. It knows with certainty that on the basis of business travel alone, it will need at least 1 airplane. The marketing division says that there is a 20% chance that tourism will be big enough for a second plane only (Light situation). Otherwise, tourism will be big enough for a third plane (Heavy situation). This, plus revenue information, yields the following table:Planes Leased Tourism Profit Expected Profit Light Heavy 2 $100 million $30 million 3 $10 million $140 million Refer to Scenario 5.8. The value to Icarus Airlines of complete information is