A Manager Is Attempting to Assess the Probability of a Recession

question 10

Multiple Choice

A manager is attempting to assess the probability of a recession ending in the next six months,and its impact on expected profitability.The manager believes there is a 75 percent chance the recession will end in six months and profits will return to $400 million.However,there is a 25 percent chance the recession will not end in six months,resulting in a $5 million loss.The standard deviation of profits over the next six months is:

• A) $175.37million.
• B) $320.18 million.
• C) $286.39 million.
• D) $0 million.

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Definitions:

Return on Investment

A financial ratio that calculates the percentage gain or loss on an investment relative to the cost of the investment, indicating the efficiency of the investment.

Investment Turnover

The ratio of sales to invested assets.

Profit Margin

A financial metric, calculated as net income divided by revenue, that indicates the percentage of sales that exceeds the costs of goods sold.

Return on Investment

A performance measure used to evaluate the efficiency or profitability of an investment, calculated by dividing net profit by the cost of the investment.