Question: A machine shop owner is attempting to decide whether to purchase a new drill press, a lathe, or a grinder. The return from each will be determined by whether the company succeeds in getting a government military contract. The profit or loss from each purchase and the probabilities associated with each contract outcome are shown in the following payoff table:

Contract No Contract

Purchase .40 .60

Drill press $40,000 $-8,000

Lathe 20,000 4,000

Grinder 12,000 10,000

Compute the expected value for each purchase and select the best one.