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 $1,000, and the first cost of Project 2 is $800. The net year€end revenue for each project is given as follows:

Project 1

Project 2

Assume that both projects are statistically independent of each other.
(a) If you make decisions 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?

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Probability Revenue Net revenue given in PW $2,000 0.2 $3,000 0.6 $3,500 0.2 Revenue Probability Net revenue given in PW $1,000 0.3 0.4 $2,500 0.3 $4,500