Question: A hospital administrator is faced with the problem of having a limited amount of funds available for capital projects. He has narrowed his choice down to two pieces of x-ray equipment, since the radiology department is his greatest producer of revenue. The first piece of equipment (Project A) is a fairly standard piece of equipment that has gained wide acceptance and should provide a steady flow of income. The other piece of equipment (Project B), although more risky, may provide a higher return. After deliberation with his radiologist and director of finance, the administrator has developed the following table:
Discovering that the budget director of the hospital is taking courses in engineering, the hospital administrator has asked him to analyze the two projects and make his recommendation. Prepare an analysis that will aid the budget director in making his recommendation. In this problem, do risk and reward travel in the same direction?