# You can invest $100,000 into either project a or b. you estimate that a succeeds with probability 0.7

###### Question:

## Answers

a) you should invest project A

Explanation:

It is far more better to invest the $100,000 into project A because:

i) project A has higher probability of success whrn compared to project B (0.7 to 0.6). i.e it is more likely to succeed when you invest in project A than B.

ii) project A has higher interest/values when it succeeds

than project B ( $200,000 to $100,000). i.e success of project A brings about more interest.

iii) project A also have high scrap value when it fails than project B ( $50,000 to $30,000)

I believe with all these reasons it is better to invest in project A.

You should invest in project

Explanation:

We calcualte the expected project value by weigh each outcome with their probability of occurence:

Project A

0.7 x 200,000 = 140,000

0.3 x 50,000 = 15,000

155,000

Project B

0.6 x 150,000 = 90,000

0.4 x 30,000 = 12,000

102,000

I would invest in project A as the expected value is greater than project B