An Analyst Expects That 20% of All Publicly Traded Companies

question 74

Multiple Choice

An analyst expects that 20% of all publicly traded companies will experience a decline in earnings next year.The analyst has developed a ratio to help forecast this decline.If the company is headed for a decline,there is a 90% chance that this ratio will be negative.If the company is not headed for a decline,there is only a 10% chance that the ratio will be negative.The analyst randomly selects a company with a negative ratio.Based on Bayes's theorem,the posterior probability that the company will experience a decline is

• A) 18%.
• B) 26%.
• C) 44%.
• D) 69%.

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Definitions:

Annual Depreciation

The amount of an asset’s cost allocated each year over its useful life, reflecting its consumption, wear and tear, or obsolescence.

Useful Life

The estimated duration of time over which an asset is expected to be functional and contribute to a company's operations.

Revenue Expenditures

Short-term expenses incurred during normal business operations that are charged against revenue in the period they are incurred.

Capital Expenditures

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.