One Local Hospital Has Just Enough Space and Funds Presently

question 17

Multiple Choice

One local hospital has just enough space and funds presently available to start either a cancer or heart research lab.If administration decides on the cancer lab,there is a 20 percent chance of getting $100,000 in outside funding from the American Cancer Society next year,and an 80 percent chance of getting nothing.If the cancer research lab is funded the first year,no additional outside funding will be available the second year.However,if it is not funded the first year,then management estimates the chances are 50 percent it will get $100,000 the following year,and 50 percent that it will get nothing again.If,however,the hospital's management decides to go with the heart lab,then there's a 50 percent chance of getting $50,000 in outside funding from the American Heart Association the first year,and a 50 percent chance of getting nothing.If the heart lab is funded the first year,management estimates a 40 percent chance of getting another $50,000,and a 60 percent chance of getting nothing additional the second year.If it is not funded the first year,then management estimates a 60 percent chance for getting $50,000,and a 40 percent chance of getting nothing in the following year.For both the cancer and heart research labs,no further possible funding is anticipated beyond the first two years.What is the expected value for the optimum decision alternative?

• A)$100,000
• B)$60,000
• C)$50,000
• D)$40,000
• E)$20,000

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Definitions:

Foreign Currency Transactions

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Monetary Assets

Assets that hold a fixed monetary value, including cash and assets that can be easily converted into cash.

Current Rate

The present interest rate, exchange rate, or other financially relevant rate that is applicable to a financial instrument or transaction.

Goodwill Impairment

The financial recognition that the value of the goodwill acquired in a business combination has decreased, indicating that the carrying value of the goodwill is no longer supported by the future economic benefits it was expected to generate.