Question

12)

Answer 1

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