You can invest $100,000 into either project A or B.You estimate that A would succeed with a probability of 0.6 in which case it doubles in value.If it fails,its scrap value is $50,000.Project B would succeed with probability 0.7,in which case it would have a value of $150,000.If it fails,project B's scrap value is $30,000.Which project should you invest in
A)Project A
B)Project B
C)Neither of the projects
D)You cannot tell from the information presented

Question

​You can invest $100,000 into either project A or B.You estimate that A would succeed with a probability of 0.6 in which case it doubles in value.If it fails,its scrap value is $50,000.Project B would succeed with probability 0.7,in which case it would have a value of $150,000.If it fails,project B's scrap value is $30,000.Which project should you invest in
A)​Project A
B)Project B
C)Neither of the projects
D)​You cannot tell from the information presented

Quizplus · Accepted Answer

The expected value of Project A is (0.6 * $200,000) + (0.4 * $50,000) = $120,000 + $20,000 = $140,000. The expected value of Project B is (0.7 * $150,000) + (0.3 * $30,000) = $105,000 + $9,000 = $114,000. Therefore, Project A has a higher expected value.

​You Can Invest $100,000 into Either Project a or B

You Can Invest $100,000 into Either Project a or B