ABC Corporation is considering launching a new product line. The total cost of developing and launching the
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ABC Corporation is considering launching a new product line. The total cost of developing and launching the product is estimated to be $1.5 million. The product is expected to generate annual revenues of $2 million for the next five years, but there is also a risk of the product generating lower revenues due to competition or other factors. ABC Corporation wants to conduct a risk analysis to determine the probability of different revenue outcomes and the expected return on investment. Assuming the following probability distributions for different revenue scenarios, what is the expected return on investment, and what is the probability of the project generating a negative return?
- Probability of revenue being $2.5 million = 40%
- Probability of revenue being $2 million = 30%
- Probability of revenue being $1.5 million = 20%
- Probability of revenue being $1 million = 10%
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