A pharmaceutical company executive has to decide whether to fund a new drug development project.For this project,a success would earn $10 million and a failure would cost $90 in lost profits.At what probability of expected success should she fund the project?
A)0)10
B)0)20
C)0)80
D)0)90

Question

Quizplus · Accepted Answer

The expected value of the project is 10 million * probability of success - 90 * probability of failure. The project should be funded if the expected value is positive. So, 10 million * probability of success - 90 * probability of failure > 0. Solving for probability of success, we get probability of success > 0.009. So, the project should be funded if the probability of success is greater than 0.009.

A Pharmaceutical Company Executive Has to Decide Whether to Fund