Question

Your company plans to invest in a particular project. There is a 35% chance that you will lose $30,000, a 40% chance that you will break even, and a 25% chance that you will make $55,000. Based solely on this information, what should you do?

Answer 1

Based on the provided probabilities and outcomes, the expected value of the project is positive, indicating it would be a good decision to proceed.

Step-by-step explanation:

Based solely on the provided information, we can determine the expected value of each outcome of the project to make an informed decision.

The expected value is calculated by multiplying each outcome by its corresponding probability and summing them up.

In this case, the expected value can be calculated as follows:

Expected value of losing $30,000: ($30,000) x (0.35) = -$10,500

Expected value of breaking even: ($0) x (0.40) = $0

Expected value of making $55,000: ($55,000) x (0.25) = $13,750

Summing up the expected values: -$10,500 + $0 + $13,750 = $3,250.

The positive expected value indicates that it would be a good decision to proceed with the project.