The Owner of a Small Convenience Store Is Trying to Decide

question 124

Essay

The owner of a small convenience store is trying to decide whether to discontinue selling magazines. He suspects that only
5% of the customers buy a magazine and thinks that he might be able to use the display space to sell something more
profitable. Before making a final decision he decides that for one day he'll keep track of the number of customers and
whether or not they buy a magazine.
-Surprised by a high number of customers who purchased magazines that day, the owner
decided that his 5% estimate must have been too low. How many magazine sales would it
have taken to convince you? Justify your answer.

---

Definitions:

Measurement Date

The specific date at which the fair value of assets and liabilities is determined for accounting purposes.

Unobservable Inputs

Inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

A system that prioritizes the inputs used in the valuation of assets and liabilities for financial reporting purposes.

Equity Instrument

is a financial instrument that evidences ownership interest in an entity, such as shares of common stock.