You receive the following email:

From: Sebastian Cohard 

To: Financial manager 

Subject: Driverless bus investment

$\mathrm{Hi}$

The board has decided that it would like to move forward with investing in driverless technology as they don't want Menta to be left behind in this potentially significant change to the market. However they are unsure as to the level of investment that should be made, given the risks involved.

The board is trying to decide between three options:

- Invest in a joint venture with Newtech to develop driverless technology by setting up a private company with equal share ownership by the two parties.

- Purchase a majority shareholding in a company (Robobus) that already has the driverless technology.

- Purchase a minority shareholding in a company (Robobus) that already has the driverless technology The directors of Robobus (which is listed on the stock market) have indicated to us that they would be willing to consider either a majority or minority investment from Menta.

I have estimated the likely net present values of revenues and operating costs, excluding non-cash items such as depreciation, over the next five years for each of the three options. I have also included the capital investment costs on each branch. Our best understanding of industry prospects is that there is a high probability that demand for driverless buses will be slow to take off and a low $(20 \%)$ probability that demand will be immediately strong.

I have summarised my projections in the form of a decision tree, attached. I made the mistake of giving this to the board without a narrative comment on the issues and now the board believes that we should undertake the majority investment in Robobus because that has an expected net present value of $\$ 4.0$ million, compared to only \$3.9 million if we undertake the joint venture with Newtech and even lower $(\$ 2.6 \mathrm{~m})$ if we make the minority investment in Robobus.

Please explain to the board how the use of expected values do not fully consider the options available and why it might be more appropriate to ignore it. Use the information given on the decision tree to support your explanation.

Sebastian