A national restoration contractor has $5 million to invest in new software to be

Question

A national restoration contractor has $5 million to invest in new software to become more efficient in writing estimates and reducing errors, increasing net profits for the company. There are three products under consideration, each with a cost of $5 million to implement across the company. Which product should be purchased?

Location A:

Probability / Outcome

.50 / 20%

.30 / 9%

.20 / -10%   

Location A:

Probability / Outcome

.50 / 20%

.30 / 9%

.20 / -10%   

Location C:

Probability / Outcome

.45 / 22%

.50 / 6%

.05 / -15%

Explanation / Answer

Location A expected return = 0.50*20% + 0.3*9% + 0.2*-10% = 10.70%

Location C expecred return = 0.45*22% + 0.50*6% + 0.05*15% = 12.15%

the table for B is not given, use can use the method above and determine the expected return

select the location with the highest expected return

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