You can invest $100,000 into either project A or B.You estimate that A would succeed with a probability of 0.7 in which case it doubles in value.If it fails,its scrap value is $50,000.Project B would succeed with probability 0.6,in which case it would have a value of $150,000.If it fails,project B's scrap value is $30,000.Which project should you invest in?
A)Project A
B)Project B
C)Neither of the projects
D)You cannot tell from the information presented

Question

​You can invest $100,000 into either project A or B.You estimate that A would succeed with a probability of 0.7 in which case it doubles in value.If it fails,its scrap value is $50,000.Project B would succeed with probability 0.6,in which case it would have a value of $150,000.If it fails,project B's scrap value is $30,000.Which project should you invest in?
A)​Project A
B)Project B
C)Neither of the projects
D)​You cannot tell from the information presented

Quizplus · Accepted Answer

To calculate the expected value of each project, we multiply the probability of success by the value when successful, and add to it the probability of failure multiplied by the value when failed. 
For Project A: (0.7 x 2 x $100,000) + (0.3 x $50,000) = $155,000 
For Project B: (0.6 x $150,000) + (0.4 x $30,000) = $102,000 
Therefore, Project A has the higher expected value and is the better choice for investment.

​You Can Invest $100,000 into Either Project a or B

You Can Invest $100,000 into Either Project a or B