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A project has a 60% of super success earning $50,000, a 15% chance of mediocre success earning $20,000, and a 25% probability of failure losing $30,000. What is the EMV of the project?

User Mafortis
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1 Answer

5 votes

Answer:

The EMV of the project is $25,500.

Explanation:

The EMV of the project is the Expected Money Value of the Project.

This value is given by the sum of each expected earning multiplied by each probability

So, in our problem


EMV = P_(1) + P_(2) + P_(3)

The problem states that the project has a 60% of super success earning $50,000. So


P_(1) = 0.6*50,000 = 30,000

The project has a 15% chance of mediocre success earning $20,000. So


P_(2) = 0.15 * 20,000 = 3,000

The project has a 25% probability of failure losing $30,000. So


P_(3) = 0.25*(-30,000) = -7,500


EMV = P_(1) + P_(2) + P_(3) = 30,000 + 3,000 - 7,500 = 25,500

The EMV of the project is $40,500.

User Ruhrpottpatriot
by
8.4k points

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