Question

Your firm is considering investment projects, a, b, and c. Given the budget constraints, you must choose either a or b, but not both. Project a will provide a net return of either ________.

Answer 1

The net return of project a, given the budget constraints, is $200,000.

Step-by-step explanation:

The question is asking about the net return of project a, given the budget constraints. To determine this, we need to consider the expected rate of return for project a and compare it to the other investment options.

Based on the information provided, we have the following probabilities and returns for project a:

• 10% chance of $5,000,000 profit
• 30% chance of $1,000,000 profit
• 60% chance of losing $1,000,000

To calculate the net return of project a, we multiply the probabilities of each outcome by their respective returns and sum them up:

Net return of project a = (0.10 * $5,000,000) + (0.30 * $1,000,000) + (0.60 * -$1,000,000)

Net return of project a = $500,000 + $300,000 - $600,000

Net return of project a = $200,000

Therefore, the net return of project a is $200,000.