IBM Inc.has a project that costs $150,000.It has a 50% chance of paying off $300,000 and a 50% chance of paying off $50,000.What is the expected payoff and the expected profit or loss from the new project?

Question

Quizplus · Accepted Answer

To calculate the expected payoff, we find the weighted average of the two payoffs: 
Expected payoff = (0.5 * $300,000) + (0.5 * $50,000) = $175,000
To calculate the expected profit, we subtract the project cost from the expected payoff: 
Expected profit = $175,000 - $150,000 = $25,000
Therefore, the best choice is A with the expected payoff of $175,000 and the expected profit of $25,000.

IBM IncHas a Project That Costs $150,000