A company is considering investing in a new project that has an estimated cost of $5 million. The company believes that there is a 70% chance that the project will be successful and generate a profit of $2 million, and a 30% chance that the project will fail and result in a loss of $1 million. The company can also purchase insurance that will pay out $1.5 million in the event of a project failure, but the insurance premium is $200,000. What is the expected value, standard deviation, and coefficient of variation of the company's net cash flow with and without insurance? Should the company purchase the insurance?

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The detailed answer for the above question is provided below To analyze the investment decision we need to calculate the expected value standard devia... View the full answer