Consider the following equally likely project outcomes:
Profit
X Y
Pessimistic prediction $ 0 $500
Expected outcome $ 500 $500
Optimistic prediction $1000 $500
A) Investors will prefer project X because it potentially offers a higher profit.
B) Investors will reject both projects because the profit is too low.
C) Investors will prefer project Y because the expected return is the same as for project X but the outcome is certain.
D) Since Projects X and Y have the same expected outcomes of $500, investors will view them as identical in value.
Answer: C
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