Joni Smith is a reputable CFO at Gladstone & Smith. The company operates in the pharmaceutical industry and the business is thriving in an ever more demanding business environment. One of Joni's challenges is to allocate surplus cash into lucrative investments. Some opportunities are more challenging than others. The board has asked Joni to allocate more investments into the electricity market. After some research the bank provided her with two interesting companies, Hydro Power and Wind & Nuclear. Even if the two generates electricity to the grid the business models are very different however to put it simple it looks as follows. Hydro Power, HP, is faced with a 30% probability of bad result and 70% for a good one. Wind & Nuclear on the other hand has a 55% chance to deliver well and 45% to deliver poorly. If HP has a good result the return is 20% and if bad 0%. W&N on the other hand will get a return of 35% if it delivers well and -10% if not. The board asked Joni to either invest in HP or W&N or a combination of 50% in each company. 

Help Joni with the required analysis and give her your advice for what to do.

Answer rating: 100% (QA)

To assist Joni with the analysis we can calculate the expected return for each option and evaluate t... View the full answer