ACME, Inc. firm was trying to decide which of the four projects it should submit a bid for, There is a 50% probability of certain event occurring that ACME firm will win the contract for project 1 which is estimated to be worth $120,000 in profit. There is a 50% probability that it will not win the contract for Project 1, and the outcome is estimated to be -$50,000. Suppose for a second project (project 2), there is a 30% probability that the firm will lose $60,000, a 40% probability that it will win $50,000, and a 30% probability that it will earn $100,000. In project 3, there is a 70% chance of making $20,000 but there is also a risk of losing $5,000 as well with 30% probability. A fourth project (Project 4) involves 30% chance of making $40,000, 30% chance of making $30,000, and 20% chance of making $20,000. There is also a 20% chance of losing $50,000 in the same project. Draw a (decision tree) diagram and calculate the EMV for each project. Write a paragraph explaining which projects you would bid on. Be sure to use the EMV information and your personal risk tolerance to justify your answer. [Show the details of your work]
ACME, Inc. firm was trying to decide which of the four projects it should submit a bid for, There is a 50% probability of certain event occurring that ACME firm will win the contract for project 1 which is estimated to be worth $120,000 in profit. There is a 50% probability that it will not win the contract for Project 1, and the outcome is estimated to be -$50,000. Suppose for a second project (project 2), there is a 30% probability that the firm will lose $60,000, a 40% probability that it will win $50,000, and a 30% probability that it will earn $100,000. In project 3, there is a 70% chance of making $20,000 but there is also a risk of losing $5,000 as well with 30% probability. A fourth project (Project 4) involves 30% chance of making $40,000, 30% chance of making $30,000, and 20% chance of making $20,000. There is also a 20% chance of losing $50,000 in the same project. Draw a (decision tree) diagram and calculate the EMV for each project. Write a paragraph explaining which projects you would bid on. Be sure to use the EMV information and your personal risk tolerance to justify your answer. [Show the details of your work]
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