You can invest $100,000 into either project A or B.You estimate that A would succeed with a probability of 0.5 in which case it doubles in value.If it fails,its scrap value is $50,000.Project B would succeed with probability 0.8,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 0.5 in which case it doubles in value.If it fails,its scrap value is $50,000.Project B would succeed with probability 0.8,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

We can calculate the expected value of each project to determine which one has a higher potential return:
Project A:
E(A) = 0.5($200,000) + 0.5($50,000) = $125,000
Project B:
E(B) = 0.8($150,000) + 0.2($30,000) = $132,000
Therefore, project B has the higher expected value and would be the best choice for investment.

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

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