Ignoring the Time Value of Money, How Much Does a Firm

question 79

Multiple Choice

Ignoring the time value of money, how much does a firm lose on a $2,000 sale that has a 30% profit margin if the 20% probability of default occurs?

• A)$120
• B)$280
• C)$600
• D)$1,400 Students must, of course, distinguish between expected losses and actual losses:
• Loss = Sales revenue - profit margin
• = $2,000 - (.3 x $2,000)

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