Answer:
This project has a positive Expected Monetary Value, so it is expected to make money. This means that the company should be advised to make the bid.
Step-by-step explanation:
We have to find the expected monetary value of this project.
If it is positive, the company should make the bid. Otherwise, they should not make the bid.
There is a 20% probability of the bid being accepted. If the bid is accepted, the company would make $26,000 and lose $4,000. So the expected net earning is $26,000-$4,000 = $22,000.
There is an 80% probability of the bid being rejected. In this case, the company loses $4,000.
The Expected Monetary Value of the project is:
.
This project has a positive Expected Monetary Value, so it is expected to make money. This means that the company should be advised to make the bid.