State University Is Considering Hiring an Outside Company for Its

question 64

Multiple Choice

State University is considering hiring an outside company for its grounds maintenance.In this regard, State University has received a bid from Mackin Services.Mackin states that its bid of $410,000 will cover all services and planting materials required to "keep State University's grounds in a condition comparable to prior years." State University's cost for grounds maintenance in the preceding year was $412,000 as follows: $$\begin{array} { l r } \text { Salary of three full-time gardeners } & \$ 295,000 \\\text { Plant materials } & 80,000 \\\text { Fertilizer } & 9,000 \\\text { Fuel } & 8,000 \\\text { Depreciation of other equipment } & 5,000 \\\text { Depreciation of tractor and mowers } & 15,000 \\\text { Total } & \$ 412,000\end{array}$$ If State University hires Mackin, it will be able to sell its other equipment for $30,000, and the three gardeners will be laid off.What will savings be in the second year?

• A)$13,000 additional costs
• B)$2,000 savings
• C)$7,000 savings
• D)$30,000 savings

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Definitions:

Expected Monetary Value(EMV)

A calculated average of all possible outcomes of a decision, where each outcome is weighted by its probability of occurring and its monetary impact.

Opportunity Loss Table

A table used in decision making to show the lost opportunities or costs associated with not choosing the best alternative.

Expected Monetary Value(EMV)

A method employed in making decisions that calculates the mean result in situations where the future holds potential but uncertain events.

Expected Monetary Value

The predicted average amount of money gained or lost from an investment or decision, calculated by considering all possible outcomes and their probabilities.