Essence Woo, a project manager at Woodstock Software Company, is deciding which of two possible projects should be implemented. Both projects involve a new computer game that appears to be profitable but available programming resources dictate only one can be implemented. The following table summarizes the present value of the incremental net cash flows for the two games:
Game 1
Net Cash Flow
Probability
$35,000,000
0.1
$39,000,000
0.1
$45,000,000
0.6
$49,000,000
0.1
$50,000,000
0.1
Game 2
Net Cash Flow
Probability
$25,000,000
0.2
$35,000,000
0.2
$45,000,000
0.2
$55,000,000
0.2
$65,000,000
0.2
Required:
a. If the criterion is to implement the game with the highest present value of incremental cash flows, which game should Essence choose?
b. Is there a circumstance were Essence might prefer to implement Game 1?