Final answer:
The Return on Equity (ROE) for Epic, Inc. with an ROE of 30 is 30%. For the venture capitalist, PDFs must be constructed for each investment opportunity to determine the expected value and assess which investment might be the most favorable. Thus (option 1) is right answer.
Step-by-step explanation:
If Epic, Inc. has an ROE (Return on Equity) of 30, this means that the return on equity is 30%. Return on Equity is a measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested. It is expressed as a percentage.
For a venture capitalist considering three different investments, it is crucial to evaluate the potential return on investment (ROI) by constructing a Probability Distribution Function (PDF) for each investment. In this scenario, one needs to calculate the expected value for each investment based on the given probabilities and potential profits or losses.
Software company:
10% chance of $5,000,000, 30% chance of $1,000,000, and 60% chance of losing $1,000,000.
Hardware company:
20% chance of $3,000,000, 40% chance of $1,000,000, and 40% chance of losing $1,000,000.
Biotech firm:
10% chance of $6,000,000, 70% chance of no profit or loss, and 20% chance of losing $1,000,000.
Thus (option 1) is right answer.