A construction company is bidding on a project that has a potential profit of $2,000,000. However, there is a 20% chance that the project will encounter delays due to bad weather, which could result in a loss of $500,000. The company is risk-averse and wants to determine whether the potential profit is worth the risk.

Assuming that the project's cash flows follow a normal distribution, with a mean profit of $2,000,000 and a standard deviation of $500,000, what is the expected value and the standard deviation of the company's profit?

If the company requires a minimum expected profit of $1,500,000 and a minimum standard deviation of $200,000, should they bid on the project?

Show all calculations and express your final answer in dollars. (20 marks)

Answer rating: 100% (QA)

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