Bailey Owns a Farm, and Her Annual Crop Is Dependent

question 24

Multiple Choice

Bailey owns a farm, and her annual crop is dependent on the weather. If it has been an exceptionally rainy year, she can expect to earn $70,000. If it has been a very dry year, she will earn $20,000. If the weather is moderate, she will earn $50,000. There is a 20 percent chance that it will be a very rainy year; a 30 percent chance that it will be a very dry year; and a 50 percent chance that the weather will be moderate. What is the expected value of Bailey's earnings?

• A)$50,000
• B)$25,000
• C)$45,000
• D)$60,000

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Definitions:

Interest Expense

The expenses an entity bears over a period for using borrowed capital.

Short-term Creditors

refers to entities or individuals that lend money or extend credit for short periods, typically less than a year, including suppliers and banks.

Liquidity

A measure of how easily assets can be converted into cash without significant loss of value, indicating the ability of an entity to meet its short-term obligations.

Price-Earnings Ratio

A measurement that contrasts a firm's stock price with its earnings per share to determine if its shares are valued appropriately.