Question

You can invest $100,000 into either project A or B. You estimate that A succeeds with probability 0.7 in which case it doubles in value. If it fails, the scrap value is worth $50,000. Project B succeeds with probability 0.6, has value $150,000 if it succeeds and value of $30,000 if not. You should invest in project A You should invest in project B You should not invest in either You cannot tell from the information presented

Answer 1

You should invest in project

Step-by-step explanation:

We calcualte the expected project value by weigh each outcome with their probability of occurence:

Project A

0.7 x 200,000 = 140,000

0.3 x 50,000 = 15,000

155,000

Project B

0.6 x 150,000 = 90,000

0.4 x 30,000 = 12,000

102,000

I would invest in project A as the expected value is greater than project B