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Project 1 50% $120,000 50% -$50,000 Project 2 30% $100,000 40% $50,000 30% -$60,000 Project 3 70% $20,000 30% -$5,000 Project 4 30% $40,000 30% $30,000 20% $20,000 20% -$50,000

Project 1 50% $120,000 50% -$50,000 Project 2 30% $100,000 40% $50,000 30% -$60,000 Project 3 70% $20,000 30% -$5,000 Project 4 30% $40,000 30% $30,000 20% $20,000 20% -$50,000

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose that your organization is deciding which of four projects to bid on, as summarized in the following table. Assume that all up-front investments are not recovered, so they are shown as negative profits. Draw a diagram and calculate the EMV for each project. Write a few paragraphs explaining which projects you would bid on. Be sure to use the EMV information and your personal risk tolerance to justify your answer. 

 

Project Chance of Outcome Estimated Profits Project 1 50% $120,000 50% -$50,000 Project 2 30% $100,000 40% $50,000 30% -$60,000 Project 3 70% $20,000 30% -$5,000 Project 4 30% $40,000 30% $30,000 20% $20,000 20% -$50,000
Transcribed Image Text:Project Chance of Outcome Estimated Profits Project 1 50% $120,000 50% -$50,000 Project 2 30% $100,000 40% $50,000 30% -$60,000 Project 3 70% $20,000 30% -$5,000 Project 4 30% $40,000 30% $30,000 20% $20,000 20% -$50,000
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