Microsoft has just developed the new Xbox, and it must now decide whether to proceed with production. If it does, Microsoft would have to invest $700 million in new PP&E immediately. If the Xbox is successful, Microsoft will earn net cash profits of $350 million annually. If the Xbox fails, it will lose $200 million annually. The outcomes are equally likely. If the required rate of return is assumed constant at 10%, would Microsoft decide to proceed with the production? *

a. Yes.

b. No.