Which of the Following Statements Is Likely to Be Correct

question 31

Multiple Choice

Which of the following statements is likely to be correct for a decision tree which indicates a 30 percent chance of making a $250,000 profit and a 70 percent chance of sustaining a $140,000 loss?

• A)the decision should be "yes" whenever the amount of possible profit exceeds the amount of possible loss.
• B)the decision should be "no" whenever there is a possibility of loss.
• C)the expected value is positive before discounting.
• D)the expected value is negative before discounting.

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Definitions:

Average Investment

The mean value of all investments held over a specific period, used to assess overall investment performance.

Estimated Average Annual Income

An approximation of the amount of money an individual or business expects to earn in an average year.

Straight-Line Method

A method of amortizing a bond discount or premium that provides for equal amounts of discount (or premium) to be written off to interest expense each period.

Useful Life

The estimated period of time over which an asset is expected to be usable by the entity, used for the purposes of depreciation or amortization.