The Operations Manager for a Local Bus Company Wants to Decide

question 98

Multiple Choice

The operations manager for a local bus company wants to decide whether he should purchase a small, medium, or large new bus for his company. He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, medium, or high, as follows:

If he feels the chances of low, medium, and high demand are 30 percent, 30 percent, and 40 percent respectively, what is the expected annual profit for the bus that he will decide to purchase?

• A)$15,000
• B)$61,000
• C)$69,000
• D)$72,000
• E)$87,000

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Definitions:

Profitability Measure

A financial metric used to assess a business's ability to generate earnings compared to its expenses and other relevant costs incurred during a specific period of time.

Common Stockholder's Equity

This represents the ownership interest of common shareholders in a company, calculated as total assets minus total liabilities and preferred stock equity.

Net Income

A company's remaining income after deducting all expenses and taxes from its revenue.

Accounts Receivable Turnover

Accounts receivable turnover is a financial ratio that measures how effectively a company is collecting on its credit sales by comparing net credit sales with the average accounts receivable for a period.