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Ultra Co. is considering two mutually exclusive projects, both of which have an economic service life of one year with no salvage value. The initial

Ultra Co. is considering two mutually exclusive projects, both of which have an economic service life of one year with no salvage value. The initial cost and the net-year-end revenue for each project are given in the following table:

Project 1

Project 2

Initial Cost

$1,200

$1,000

Probability

Revenue

Probability

Revenue

Net Revenue given in PW

0.25

$1,800

0.3

$2,400

0.35

$2,200

0.3

$1,600

0.15

$3,500

0.2

$2,700

0.25

$2,600

0.2

$2,800

Assuming both projects are statistically independent of each other,

  1. Calculate the expected value for each project.
  2. Calculate the variance for each project.
  3. Which project should be chosen? Why?

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