You are a hotel manager and you are considering four projects that yield different payoffs,depending upon whether there is an economic boom or a recession.The potential payoffs and corresponding payoffs are summarized in the following table. $$\begin{array} { | l | l | l | }
\hline \text { Praject } & \begin{array} { l }
\text { Bamn } \
( 50 \% )
\end{array} & \begin{array} { l }
\text { Recession } \
( 50 \% )
\end{array} \
\hline \text { A } & \$ 20 & - \$ 10 \
\hline \text { B } & - \$ 10 & \$ 20 \
\hline \text { C } & \$ 30 & - \$ 30 \
\hline \text { D } & \$ 50 & \$ 50 \
\hline
\end{array}$$ The expected value of project D is:

Question

You are a hotel manager and you are considering four projects that yield different payoffs,depending upon whether there is an economic boom or a recession.The potential payoffs and corresponding payoffs are summarized in the following table. $$\begin{array} { | l | l | l | } 
\hline \text { Praject } & \begin{array} { l } 
\text { Bamn } \
( 50 \% )
\end{array} & \begin{array} { l } 
\text { Recession } \
( 50 \% )
\end{array} \
\hline \text { A } & \$ 20 & - \$ 10 \
\hline \text { B } & - \$ 10 & \$ 20 \
\hline \text { C } & \$ 30 & - \$ 30 \
\hline \text { D } & \$ 50 & \$ 50 \
\hline
\end{array}$$ The expected value of project D is:

Quizplus · Accepted Answer

To calculate the expected value of project D, we first find the expected payoff in a boom and in a recession:

Expected payoff for D in a boom: 0.5($50) = $25
Expected payoff for D in a recession: 0.5($50) = $25

Therefore, the expected value of project D is:
Expected value of D = 0.5(Expected payoff in a boom) + 0.5(Expected payoff in a recession)
Expected value of D = 0.5($25) + 0.5($25)
Expected value of D = $25

Since project D has the highest expected payoff, it is the best choice.

You Are a Hotel Manager and You Are Considering Four