Answer:
the total expected value of the investment is given by:
0.27(150,000 - 35,000) + 0.73(-35,000)
The net value is:
5500.
Step-by-step explanation:
A business has an opportunity to invest $35,000.
If the investment is a success, the business earns a profit of $150,000.
The probability of success=0.27.
Hence, the value (in this case profit) of the business would be $150,000 (pure profit) minus the $35,000 (initial investment). Multiplying, you get =0.27(150,000 - 35,000).
Also the probability of failure=1-0.27=0.73
Hence, The value would now be $0 (pure profit) minus the original investment for a total of - $35,000. Multiplying, you get:
= 0.73(-$35,000).
Now the total expected value of the investment is given by:
0.27(150,000 - 35,000) + 0.73(-35,000)
on solving we get:
=0.27×115000-25550
=31050-25550
=5500.
