You have a project that costs $750,000.It has a 0.30 chance of paying off $3,000,000 and a 0.70 chance of paying off $0.What is the expected profit from the new project?
A)$300,000
B)$150,000
C)$100,000
D)zero

Question

Quizplus · Accepted Answer

The expected profit can be calculated as follows:  
Expected profit = (Probability of payoff x payoff amount) - cost of the project
Expected profit = (0.30 x $3,000,000) - $750,000 
Expected profit = $900,000 - $750,000 
Expected profit = $150,000
Therefore, the best choice is B because it has the highest expected profit.

You Have a Project That Costs $750,000