You have a project that costs $800,000.It has a 1/3 chance of paying off $3,000,000 and a 2/3 chance of paying off $0.What is the expected payoff from the new project?
A)$500,000
B)$800,000
C)$1,000,000
D)$1,200,000

Question

Quizplus · Accepted Answer

To calculate expected payoff, we multiply each possible outcome by its probability and add them together. 
Expected payoff = (1/3)($3,000,000) + (2/3)(0) = $1,000,000. 
Therefore, the best choice would be to take on the project, as the expected payoff is higher than the cost of the project.

You Have a Project That Costs $800,000