A business has two investment opportunities in each of which it can invest any amount up to £2m. It has £2m to invest. The characteristics of the two opportunities are as follows:

The outcomes from these two projects are independent of one another. This is to say that outcome (i) occurring in Project A tells us nothing about the outcome of Project B.

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Project Outcome (NPV as % of investment) Probability A (i) +20% 0.5 (ii) -10% 0.5 B (i) +20% 0.5 (ii) -10% 0.5