The Head of Operations for a Movie Studio Wants to Determine

question 44

Multiple Choice

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production.(Due to budgeting constraints,only one new picture can be undertaken at this time.) She feels that script #1 has a 70 percent chance of earning about $10,000,000 over the long run,but a 30 percent chance of losing $2,000,000.If this movie is successful,then a sequel could also be produced,with an 80 percent chance of earning $5,000,000,but a 20 percent chance of losing $1,000,000.On the other hand,she feels that script #2 has a 60 percent chance of earning $12,000,000,but a 40 percent chance of losing $3,000,000.If successful,its sequel would have a 50 percent chance of earning $8,000,000,but a 50 percent chance of losing $4,000,000.Of course,in either case,if the original movie were a "flop",then no sequel would be produced.What would be the total payoff if script #1 was a success,but its sequel was not?

• A)$15,000,000
• B)$10,000,000
• C)$9,000,000
• D)$5,000,000
• E)$-1,000,000

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Definitions:

FIFO

First-In, First-Out method of inventory valuation where older stock is sold first.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, not yet sold.

Inventory Valuation

The process of determining the value of a company's inventory, taking into account costs of acquiring, producing, and storing the inventory.

Income Taxes

Taxes levied by the government on the income generated by businesses and individuals, which vary by income levels and jurisdictions.