3.A firm is comparing two mutually exclusive projects. The two projects have thesame service life with no salvage value. The initial cost of Project A is $12,000, and theinitial cost is $8,000 for Project B. The net revenue (already converted to present worth) foreach project is listed below:Project ANet Revenue given in PW$23,000$28,000Probability0.200.55$35,0000.25Project BNet Revenue given in PW$10,000$20,000Probability0.300.40$46,0000.30а.What are the expected value and standard deviation of each project's netpresent worth?b.If you make decision by maximizing the expected value of NPW, whichproject wouldyouselect?If you also consider the variance of the projects, which project would youс.choose?

Given, Two mutually exclusive projects: Project A and Project B With no salvage value Initial cost…

A firm is comparing two mutually exclusive projects. The two projects have the same service life with no salvage value. The initial cost of Project A is $12,000, and the initial cost is $8,000 for Project B. The net revenue (already converted to present worth) for each project is listed below:

A firm is comparing two mutually exclusive projects. The two projects have the same service life with no salvage value. The initial cost of Project A is $12,000, and the initial cost is $8,000 for Project B. The net revenue (already converted to present worth) for each project is listed below:

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter1: Introduction And Goals Of The Firm

Section: Chapter Questions

Problem 2.2CE

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Question

3.
A firm is comparing two mutually exclusive projects. The two projects have the
same service life with no salvage value. The initial cost of Project A is $12,000, and the
initial cost is $8,000 for Project B. The net revenue (already converted to present worth) for
each project is listed below:
Project A
Net Revenue given in PW
$23,000
$28,000
Probability
0.20
0.55
$35,000
0.25
Project B
Net Revenue given in PW
$10,000
$20,000
Probability
0.30
0.40
$46,000
0.30
а.
What are the expected value and standard deviation of each project's net
present worth?
b.
If you make decision by maximizing the expected value of NPW, which
project would
you
select?
If you also consider the variance of the projects, which project would you
с.
choose?

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