Question
A company is considering investing in two different projects: Project A and Project B. The potential profits, as well as the associated risks, are shown
A company is considering investing in two different projects: Project A and Project B. The potential profits, as well as the associated risks, are shown in the table below:
| Project | Potential Profit | Probability of Success |
|---|---|---|
| A | $4,000,000 | 0.6 |
| -$2,000,000 | 0.4 | |
| B | $6,000,000 | 0.4 |
| -$3,000,000 | 0.6 |
The company is risk-averse and wants to choose the project with the highest expected profit while also minimizing the risk. Determine which project the company should choose.
Show all calculations and express your final answer in dollars. (20 marks)
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Accounting Tools for business decision making
Authors: kimmel, weygandt, kieso
4th Edition
978-0470117262, 9780470534786, 470117265, 470534788, 978-0470095461
