Question

Your management team has brought to you the result of their projections of two business plans as follows. The internal policy is to have at least 5.75% of ROI of any new or existing businesses.   Both projects require the same amount of investment of $1,200,000. Everyone is waiting for your decision to select one. Which project would you recommend them to go for?

Project A:            This project has three scenarios as follows:

1.   In an optimistic case, it will bring in the net profit of $120,000; the probability of this happening is 15%.

2.   In a moderate case, it will bring in the net profit of $ 60,000; the probability of this happening is 75%.

3.   A pessimistic case that will bring in net profit of $ 20,000; the probability of this happening is 10%.

Project B:             This project has three scenarios as follows:

1.   In an optimistic case, it will bring in the net profit of $120,000; the probability of this happening is 25%

2.   In a moderate case, it will bring in the net profit of $ 80,000; the probability of this happening is 60%.

3.   In a pessimistic case, it will bring in the net loss of -$ 40,000; the probability of this happening is 15%.

Project A

Project B

Both are recommendable.

Neither one is recommendable.

Answer 1

Project B is recommended

Explanation:

Note: Be careful while reading amounts in image (with commas)