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Consider the following equally likely project outcomes Profit X Y Pessimistic prediction $0 $500 Expected outcome $500 $500 Optimistic prediction $1000 $500 Investors will prefer
Consider the following equally likely project outcomes Profit X Y Pessimistic prediction $0 $500 Expected outcome $500 $500 Optimistic prediction $1000 $500 Investors will prefer project because the expected return is the same as for project X but the outcome is certain. Investors will reject both projects because the profit is too low. Investors will prefer project X because it potentially offers a higher profit. Since Projects X and Y have the same expected outcomes of $500, investors will view them as identical in value. CCCO
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