Question: big construcction comapany, a risk neutral developer, is considering two alternative projects for the purposes of investing in one of them. Option 1 is a
big construcction comapany, a risk neutral developer, is considering two alternative projects for the purposes of investing in one of them. Option is a fixed fee project, where Big Construction Company will generate a profit of R million. The profit of Option on the other hand is uncertain. The Directors believe that option has a probability of generating R million, a probability of generating R million and a probability of returning a profit of R million.
Calculate the expected monetary values of options and and advise which option Big Construction Company would select. Please show or explain how you reach your answer. Max lines
Which alternative would a risk seeking company be likely to select? Why? Max lines
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