Question: In evaluating the risks associated with future economic and market conditions, there is a 60% chance (or 0.60) of favorable market conditions in the future

In evaluating the risks associated with future economic and market conditions, there is a 60% chance (or 0.60) of favorable market conditions in the future and a 40% chance (or 0.40) of only average market conditions.

Market research has produced revenue estimates for two different projects under these two market conditions.

Project A under favorable market conditions could earn our organization $200,000... but only $100,000 under average market conditions.

Project B under favorable market conditions could earn our organization $300,000... but only $50,000 under average market conditions.

Use decision-tree and/or expected value calculations to determine if Project A or Project B is a better option.

1) Calculate a net present value for each of the two projects.

2) Which project should be selected, and why?

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