Question

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

A) because the expected value is 0.25(-40000)+0.4(30000)=2000