Question

A company has an opportunity to bid on three contracts. Determine which would be the best investment given the information in the table below.

CONTRACT
PROFIT, (P)* OF PROFIT...(P)*. TO BREAK EVEN...LOSS, (P)* OF LOSS
Southeast
$45,000, 50%...30%...$6,000, 20%
Southwest
$60,000, 35%...40%...$10,000, 25%
California
$112,000, 20%...40%...$40,000, 40%
*(P)=PROBABILITY

a) Southeast
b) Southwest
c) California
d) All contracts include a probability for loss

Answer 1

It's A. Southeast

Explanation:

Answer 2

CONTRACT PROFIT, (P)* OF PROFIT...(P)*. TO BREAK EVEN...LOSS, (P)* OF LOSS

Southeast $45,000, 50% 30% $6,000, 20%

Southwest $60,000, 35% 40% $10,000, 25%

California $112,000, 20% 40% $40,000, 40%

I think that the best contract would be with SOUTHEAST. It probability of having a profit is higher than the other two at 50% while its probability of incurring a loss is lesser than the other two at 20%.

Despite the bigger value of its contract profit of the other two, these value will still be greatly affected by its corresponding probabilities.