Superior Craft is evaluating the launch of a new product.If the product becomes successful, the current value of future cash flows (excluding investments) is estimated at P2,000,000. If the product is not successful, the current value of this flow is estimated at P400,000.The required investment is P1,000,000.

Question:

What are the probabilities that would have to be assigned to the events "success" and "not success" to make Superior Craft indifferent between the two actions "invest" and "do not invest"?

a. 37.5% (Probability of success)

62.5% (Probability of not having success)

b. 40% (Probability of success)

60% (Probability of not having success)

c. 45.5% (Probability of success)

54.5% (Probability of not having success)

d. 50% (Probability of success)

50% (Probability of not having success)

Sampaguita Company is planning to market a new product.The marketing research staff prepared the following payoff probability distribution giving the relative likelihood of monthly sales volume levels and the corresponding income (loss) for the new product;

Monthly sales volume

2,500

5,000

10,000

15,000

25,000

Probability

0.10

0.20

0.50

0.10

0.10

Income (loss)

P(25,000)

7,500

37,500

50,000

75,000

The expected value of the monthly income from the new product:

a.P18,750b.P22,500c.P30,250d.P32,750