Answer:
Project A : $58,000
Project B: $52800
Project A should be selected as it has a higher expected profit value than project B
Step-by-step explanation:
Given the following:
PROJECT A:
Profit : ---------50000--90,000--10,000
Probability: ----0.6-------0.3--------0.1
PROJECT B:
Loss of 20,000 = -20,000 in profit terms
Profit : -----100,000--64,000--(-20,000)
Probability: ----0.1-------0.7--------0.2
Expected profit:
Profit value * probability of profit
Expected profit on project A:
[(50000*0.6)+(90000*0.3)+(10000*0.1)
30000 + 27000 + 1000 = $58000
Expected profit on project B:
[(100000*0.1)+(64000*0.7)+(-20000*0.2)
10000 + 44800 - 4000 = $50800
Project A should be selected as it has a higher expected profit value than project B
