Exhibit 14.5 The Following Questions Are Based on the Information Below

question 65

Multiple Choice

Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%.
-In decision-making, luck

• A) often plays a role in determining whether good or bad outcomes occur
• B) can be quantified
• C) cannot be quantified
• D) can be ignored

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Definitions:

Gross Earnings

Total compensation earned by an employee.

Direct Labor Hour

A measure of labor input, which is the time spent by workers directly manufacturing a product.

Direct Materials

Direct materials are raw materials that are directly used in the manufacturing process of a product and are easily traceable to it.

Total Cost

The sum of all expenses incurred in the production of goods or services, including fixed and variable costs.