A Manager Is Attempting to Assess the Probability of a Recession

question 122

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 33 percent chance the recession will end in six months and profits will return to $100 million.However,there is a 67 percent chance the recession will not end in six months,resulting in a $7 million loss.The expected profits over the next six months are:

• A) $28.31 million.
• B) $33 million.
• C) $64.69 million.
• D) $−2.31 million.

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Definitions:

Ethics

A branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong behavior.

Maximizing Wealth

The process or strategy aimed at increasing the financial value and assets owned by an individual or corporation.

External Users

Individuals or entities outside of a company who rely on financial statements to make informed decisions about the company, including investors, creditors, and regulatory agencies.

Shareholders

Shareholders are individuals or entities that legally own one or more shares of stock in a public or private corporation, giving them a claim on its assets and earnings.