An Investor Is Considering a $25,000 Investment in a Start-Up

question 57

Multiple Choice

An investor is considering a $25,000 investment in a start-up company. She estimates that she has probability 0.15 of a $20,000 loss, probability 0.1 of a $30,000 profit, probability 0.25 of a $40,000 Profit, and probability 0.5 of breaking even (a profit of $0) . What is the expected value of the profit?

• A) $22,500
• B) $10,000
• C) $16,000
• D) $16,667

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Definitions:

Cost Variances

Cost variances refer to the difference between the expected (budgeted) costs and the actual costs incurred during a specific period.

Management

The process of planning, organizing, leading, and controlling resources to achieve specific goals.

Exception

A deviation from the norm or a case that does not follow the general rule.

Standard Costs

Predetermined costs assigned to goods and services, used as benchmarks to measure performance by comparing them with actual costs.