Question

Please help explain work?

A construction company plans to invest in a building project. There is a 25% chance that the company will lose $40,000, a 35% chance of a break even, and a 40% chance of a $30,000 profit. Based on this, what should the company do?

A) The expected value is $2,000, so the company should proceed with the project.
B) The expected value is $22,000, so the company should proceed with the project.
C) The expected value is - $2,000, so the company should not proceed with the project.
D) The expected value is $-22,000, so the company should not proceed with the project.

Answer 1

0.25 x 40,000 = - $10,000 ( lose )
0.35 x 0 = 0 ( break even )
0.4 x 30,000 = +$12,000 ( profit )
$12,000 - $10,0000 = $2,000
Answer:
A ) The expected value is $2,000, so the company should proceed with a project.