Question: A group of investors is deciding whether to fund a hotel and casino in Everett, MA. They will only finance the project if they can earn a net profit of at least 12.5% on their total investment in the first year of operation. The cost of time and materials to build is $500,000,000. Other start-up costs included an environmental impact study for $650,000, and a market study for $350,000. Salaries and other expenses for the first year are $24,000,000. The following outcomes and their probabilities were determined for the first year:

1. a net profit of two hundred million dollars is 30%
2. a net profit of twenty million dollars is 20%
3. breaking even ($0 net profit) is 20%
4. a net loss of ten million dollars is 25%
5. a net loss of one hundred million dollars is 5%.

a) What is the expected value based on the probable outcomes of the project? The expected value is the mean of the probability distribution.

b) Would the investment group invest in this project? State precisely why or why not.

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