Costa Rica Resorts,Inc.has a project that costs $500,000.It has a 40% chance of a $1,000,000 payoff and a 60% chance of a $200,000 payoff.What is the expected payoff and the expected profit or loss from the new project?

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Quizplus · Accepted Answer

The expected payoff is calculated as (0.4 * $1,000,000) + (0.6 * $200,000) = $400,000 + $120,000 = $520,000. Subtracting the cost of the project ($500,000) from the expected payoff ($520,000) gives an expected profit of $20,000.