Answer:
The expected value is $2,000
Explanation:
The expected value in the following situation is computed as:
Expected value = Probability of bid × (Anticipated Profits - Cost of drawing plans) - (1 - Probability of bid) × Cost of drawing plans
where
Probability of bid is 0.12
Anticipated Profits is $100,000
Cost of drawing plans is $10,000
Putting the values above:
= 0.12 × ($100,000 - $10,000) - (1 - 0.12) × $10,000
= 0.12 × $90,000 - 0.88 × $10,000
= $10,800 - $8,800
= $2,000
