A charity is about to launch an appeal for a children’s ward in a national
hospital and has to choose between the following fund raising strategies.
Strategy I involves an initial appeal outlay of Sh. 40,000 and administrative
costs of 5 cents for each Sh. 1.00 collected. Strategy II has no initial outlay but
instead involves an extensive door-to-door campaign with administrative costs
of 30 cents for each Sh. 1.00 collected. It is estimated that, whichever strategy
is used the amount collected will be as follows:
Amount (Sh.) 50,000 100,000 150,000 200,000
Probability 0.2 0.4 0.3 0.1
Required:
(i) Construct a pay-off table. (2 marks)
(ii) Determine which strategy the charity should adopt. (4 marks)