Given the Payoff Table Below, Determine the Expected Value and Size

question 2

Multiple Choice

Given the payoff table below, determine the expected value and size of warehouse that would be built, given a probability of 0.7 and 0.3 to the high and low demands, respectively.

• A) $8 million, small warehouse
• B) $5 million, medium warehouse
• C) $18.7 million, large warehouse
• D) $12 million, medium warehouse
• E) $22 million, large warehouse

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Definitions:

Inventory Methods

Techniques used to determine the cost of goods sold and ending inventory value, such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and weighted average cost.

Days' Sales

A measure often used to evaluate the average time it takes for a company to convert its inventory into sales.

Lower-of-Cost-or-Market

An accounting principle that mandates inventory be recorded at the lower between its historical cost and current market value.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.