Question 1: Please show work:

Question 1 Blue Line Transportation (BLT) is bidding to construct the vehicles for the new LAX peoplemover. BLT estimates there will be a 10% chance that they are selected from the initial pool and invited to submit a full proposal. If they are invited to submit a proposal, it will cost them $20K in salary and other resources to prepare the proposal, and the contract is worth $900K if they are selected. Historically, there are 5 firms invited to submit a proposal for these types of projects, and each of the invited rms are equally likely to be the one selected for the contract. If BLT is invited and submits but is not selected then they receive no revenue for the work, and so they can elect not to submit a proposal if even they are invited from the initial pool. a) If BLT is selected from the initial pool, how much should they expect to make if they bid? You may assume that all 4 other selected rms will submit a proposal. (5 points) b) Before they know whether or not they are invited from the initial pool, how much should BLT expect to make? (4 points) 0) Suppose you are an outside angel investor for BLT's prospective invite and bid. It would take $1K to invest up front (even before the initial invite outcome is known), and for this you would receive a 10% cut of any prot. Instead, you could wait and see if they are invited from the pool, at which time it would cost you $7.5K to invest and receive a 5% cut of any prot. You may also choose not to invest at all, and you will make at most one investment. How much do you expect to earn from each of these three options, and what should you do? (6 points) d) BLT wants to incentivize you to invest in them if they are invited from the initial pool (and not before), as your larger investment can help support the operational costs of preparing a proposal. Assuming everything else as is in (c), how much of a cut should they offer you? (5 points)