Facing the worst economic climate since the dot-com bust in the early 2000s, high-tech companies in the United States search for investment opportunities with cautious optimism (USA TODAY, February 17, 2009). Suppose the investment team at Microsoft is considering an innovative start-up project.
According to its estimates, Microsoft can make a profit of $5 million if the project is very successful and $2 million if it is somewhat successful. It also stands to lose $4 million if the project fails. Calculate the expected profit or loss for Microsoft if the probabilities that the project is very successful and somewhat successful are 0.10 and 0.40, respectively, with the remaining amount being the failure probability.