If you make decision by maximizing the expected

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Reference no: EM13535659

Please show calculation formulas, and explanation of this whole probability deal

Project 1

Probability Revenue

Net revenue given in

PW 0.2 $2,000

0.6 $3,000

0.2 3,500

Project 2 Probability Revenue

Net revenue given in

PW 0.3 $1,000

0.4 $2,500

0.3 $4,500

A manufacturing firm is considering two mutually exclusive projects. Both projects have an economic service life of one year, with no salvage value. The first cost of Project 1 is $1000 and the first cost of project 2 is $800. The Net year for each project is as follows.

Assume that both projects are statistically independent of each other.

a) If you make decision by maximizing the expected NPW, which project would you select?

b) If you also consider the variance of the projects, which project would you select?

Reference no: EM13535659

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