Graphic Design Inc. has a project that costs $150,000. It has a 40% chance of a $200,000 payoff and a 60% chance of a $100,000 payoff. What is the expected payoff and the expected profit or loss from the new project?
A) The expected payoff is $160,000 and the expected profit is $10,000.
B) The expected payoff is $10,000 and the expected profit is $10,000.
C) The expected payoff is $140,000 and the expected loss is $10,000.
D) The expected payoff is $150,000 and the expected loss is $0.
Answer: C
Explanation: C) Expected Payoff = (.40) × $200,000 + (.60) × $100,000 = $140,000.
Expected Profit = $140,000 - $150,000 = -$10,000.
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