A Candidate Must Decide Whether He Should Spend His Time

question 77

Multiple Choice

A candidate must decide whether he should spend his time and money on TV commercials or making personal appearances. His staff determines that by using TV he can reach 110,000 people with probability 0.06, 55,000 people with probability 0.39, and 30,000 people with probability 0.55; by making personal appearances he can reach 80,000 people with probability 0.04, 60,000 people with probability 0.36, and 25,000 people with probability 0.6. In the following table, x represents the number of people reached by each choice. In each case, find the expected value of x to decide which method, if either, will reach more people. ​ ​

• A)​ ​
• B)​ ​
• C)​ ​
• D)​ ​

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Definitions:

Amortization Period

The length of time over which the principal of a debt is scheduled to be paid down through amortization.

Discounted Cash Flow

A valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for time value of money.

Payback Period

The duration required to recover the initial investment in a project or asset, based on the cash inflows that the investment generates.

Time Value

The principle that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.