Consider the Following Equally Likely Project Outcomes: Profit

question 43

Multiple Choice

Consider the following equally likely project outcomes: Profit
X Y
Pessimistic prediction $ 0 $500
Expected outcome $ 500 $500
Optimistic prediction $1000 $500

• A) Investors will prefer project X because it potentially offers a higher profit.
• B) Investors will reject both projects because the profit is too low.
• C) Investors will prefer project Y because the expected return is the same as for project X but the outcome is certain.
• D) Since Projects X and Y have the same expected outcomes of $500, investors will view them as identical in value.

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Definitions:

Accumulated Depreciation

Accumulated Depreciation is the total amount of depreciation expense that has been recorded for an asset over its useful life, indicating the amount of value the asset has lost over time.

Book Value

The net value of a company's assets as found on its balance sheet, calculated by subtracting total liabilities from total assets.

Adjustment

Changes made to the financial records at the end of an accounting period to reflect true and fair values.

Unearned Fees

Income received by an entity for services yet to be provided and is recorded as a liability until the service is rendered.