Project 1 Probability Revenue Net revenue given in PW 0.2 $2,000 0.6 $3,000 0.2 $3,500 Project 2 Probability Revenue Net revenue given in PW 0.3 $1,000 0.4 $2,500 0.3 $4,500
Project 1 Probability Revenue Net revenue given in PW 0.2 $2,000 0.6 $3,000 0.2 $3,500 Project 2 Probability Revenue Net revenue given in PW 0.3 $1,000 0.4 $2,500 0.3 $4,500
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A manufacturing firm is considering two mutually exclusive projects. Both projects have an economic service life of one year with no salvage value. The first cost or Project 1 is $1,000, and the first cost or Project 2 is $800. The net year-end revenue for each project is given as follows:
Assume that both projects are statistically independent or each other.
(a) If you make decisions by maximizing the expected NPW, which project
would you select?
(b) If you also consider the variance of the projects, which project would you
select?
Transcribed Image Text:Project 1
Probability Revenue
Net revenue given in PW
0.2
$2,000
0.6
$3,000
0.2
$3,500
Project 2
Probability
Revenue
Net revenue given in PW
0.3
$1,000
0.4
$2,500
0.3
$4,500
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