A. Project 1 has five bidders with equal chances of winning. Its value is $400,0

ID: 3917126 • Letter: A

Question

A. Project 1 has five bidders with equal chances of winning. Its value is $400,000, but will cost $20,000 to bid. What is its EMV?

a. $80,000

b. $380,000

c. $64,000

d. Insufficient data

B. Project 2 has 100 bidders with equal chances of winning. Its value is $26,000,000, but will cost $200,000 to bid. What is its EMV?

a. $2,000

b. $62,000

c. $25,800,000

d. Insufficient data

C. If he can only bid on one project, a risk-seeking manager will bid on which one?

a. Project 1

b. Project 2

c. Insufficient data

Answer 1: C

here we have 5 bidders so winning chance is 20% and loosing chance is 80 %

so 400000 * .2 = 80000 - 20000 * .8 = 16000

EMV = 64000

Answer 2: B

here 100 bidders chance of winning is 1 % and loosing is 99 %

so 26000000 * 0.01 = 2,60,000 - 200000 * .99 = 198000 = 62000

Answer 3:

Project1 as the winning % is 20 which is higher than 1 %

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