rachelkim999
contestada

Based on past experience, a building contractor sets the
probability of winning a contract at 0.10. The contract is
worth $75,000 and the cost to prepare the contract proposal
is $10000. What is the expected value of the contract
proposal?

A. $2500
B. $22600
C. $22600
D. $2500

Respuesta :

michell96

Based on the cost of the contract and the probability to win it, the total expected value of the contract proposal is -$2500.

How to calculate the expected value of a contract proposal?

The general formula to calculate the expected value is:

  • Expected value: possibility of winnind the contract x the amount when winning - possibility of loing the contract x possible loss

  • Possibility of winning the contract= 0.10
  • Possibility of losing the contract = 0.90
  • Gain: $65000
  • Loss: $10000

What is the expected value of the contract?

  • Expected value: 0.10 x 65000 - 0.90 x 10000
  • Expected value: 6500 - 9000
  • Expected value: -$2500

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